New Bill Would Reduce Taxes On Lifetime Annuity Income
The U.S. House of Representatives has introduced the Retirement Security Needs Lifetime Pay Act, designed to encourage Americans to invest lifetime income annuities by giving them tax breaks. The bill, introduced by Reps. Earl Pomeroy (D-N.D.) and Ginny Brown-Waite (R-Fla.), would exclude half the taxes on the income from a non-qualified annuity, up to $10,000 a year. It would also exclude taxes on 25% of income payments from Individual Retirement Accounts and qualified retirement plans other than defined benefit plans.
NAVA applauded the bill, with the organization's President and CEO Cathy Weatherford saying, "This legislation is a huge step in the right direction giving Americans the ability to bolster their retirement security with guaranteed lifetime paychecks. We all know there is a growing problem with Social Security. Now more than ever, Americans need to plan long term and to have the peace of mind that only lifetime payments can deliver."
Capital Group Lays Off 9%
Capital Group will cut 9% of its global workforce of 9,000, or 820 jobs, this month. This will be American Funds' parent company's second round of layoffs, in response to a 29% decline in assets from $1.2 trillion to $850 billion. The company eliminated 500 jobs in January. All job areas, except for portfolio managers and analysts, will be affected, according to a spokesman.
Evergreen Settles With SEC for $40 Million
Wells Fargo, parent of the Evergreen mutual funds, has agreed to pay $40 million to the Securities and Exchange Commission to settle charges it inflated the value of mortgage-backed securities held by one of its mutual funds, the Ultra Short Opportunities Fund. The fine includes $33 million to compensate investors, civil fines of $4 million and $3 million in restitution.
An spokeswoman for Evergreen, which neither admitted to or denied the charges, said the company was happy to resolve the matter and move forward.
The SEC said that even after the company correctly valued the securities, which were inflated 17%, it only informed select shareholders about the reasons for the change, permitting them to cash out of the fund to avoid losses ahead of other shareholders.
"By picking and choosing to disclose negative information to some investors and not others, Evergreen gave certain shareholders an unfair advantage and left others in the dark," said David Bergers, director of the SEC's Boston office. "Evergreen harmed investors and prevented them from making informed decisions by overstating the value of its holdings in mortgage-backed securities."
Managers Ease Out of Cash
Mutual fund managers are moving back into the stock market, finally putting cash they have been holding onto for more than a year back to work, MarketWatch reports.
Although some don't think the economy is yet fully on its way to recovery, they sense that the worst is over and are compelled by cheap prices.
Data on the 50 best-performing equity funds from Morningstar shows that their median cash holding was 15.4% in 2008, and that they have lowered those levels to 9.1%.
"Stocks were down to the lower end of any rational historical valuation-unless you believed we were going into a depression," said David Ellison, chief investment officer at FBR Funds, who himself moved 60% of his portfolios' assets into cash last year. Today, cash comprises only 10% of their holdings.
Citing lower overnight inter-bank lending rates, an uptick in home sales, improving corporate earnings and restored capital markets, Ellison characterized all of that as "a pile-on of good news."
Affluent Improve Outlook To Only 'Mildly Bearish'
Affluent investors' confidence increased in May for the third consecutive month, according to a survey by Spectrem Group.
The Spectrem Affluent Investor Index, based on interviews with 250 investors in households with $500,000 or more of investable assets, rose nine points, to a "mildly bearish" reading. It was the index's highest level since February 2008.
The Spectrem Millionaire Investor Index, gauging a subset of the 250 investors, rose 17 points. That was the millionaire index's highest level since December 2007.
"Millionaires' investment optimism surged in May, recording the largest monthly increase since we began tracking it in February 2004," said George H. Walper, Jr., Spectrem's president.
In response to an open-ended question about the factor most affecting their investment outlook, affluent investors in May cited: the economy (25%); the political environment (25%); stock market conditions (6%); housing and real estate (3%); and rising oil and gas prices (1%). Twenty-seven percent of the millionaires said the political environment was their chief concern, and 24% cited the economy.
Fidelity, KKR Offer IPOs To Retail Investors, B/Ds
Fidelity Investments and Kohlberg Kravis Roberts reached an agreement whereby the mutual fund company's retail, broker/dealer and RIA customers will have access to initial public offerings and secondary stock sales of KKR portfolio companies.
KKR will serve as the underwriter of all retail securities distributed by Fidelity.
"Our new relationship with KKR gives Fidelity the ability to offer our clients unique access to new issue equity offerings of KKR portfolio companies and the potential for more meaningful allocations in those offerings," said Mark Haggerty, president of Fidelity Capital Markets.
Because KKR's portfolio is comprised of close to 50 businesses, generating more than $200 billion in annual sales, Fidelity's customers will be able to tap into a potentially large vein of future securities offerings.
KKR, a New York-based private equity firm, typically holds its investments for five to 10 years before harvesting its companies through IPOs or direct sales. In addition, the firm may also execute secondary offerings of companies it has already taken public to realize partial liquidity on its remaining stakes.
Vanguard 401(k) Investors Fared Better Than Market
Citing the positive effects of diversification and continued contributions, Vanguard announced that the median decline in the three million defined contribution accounts it administers fell 17% in the 15 months ended March 31, as opposed to the market's overall 44% decline.
In fact, 36% of participants' balances either remained flat or increased. Another 20% raw their balances fall between 1% and 20%. Only 33% experienced declines of more than 30% in that timeframe.
"The typical participant's experience was better than that of the overall market because of the benefits of portfolio diversification and ongoing contributions," said Stephen Utkus, director of the Vanguard Center for Retirement Research.
"In particular, the effect of regular contributions may be one of the reasons that most 401(k) participants tend to stay the course and do not alter their portfolios in response to falling markets," Utkus said.
Only 6% of Vanguard's defined contribution clients made changes to their portfolio in the 15 months between January 2008 and March 2009. "Once again, we see inertia as the dominant force in participants' investment decisions, even during periods of historic market volatility," Utkus said.
However, investors have slightly reduced their equity exposure. The average account now holds 69% of its assets in equities, down from 73% in 2008 and 74% in 2007.
Fewer people are taking loans; applications for loans declined by 12% in 2008, and early figures for the first quarter of 2009 show that trend accelerating. In addition, fewer than 2% of participants took hardship withdrawals in 2008. That trend also continued in the first quarter.
"The participant activity patterns we're seeing demonstrate the resilience of most participants and the benefits of sticking to a balanced, well-diversified investment plan," Utkus said.
Great-West Offers 'Next Generation' Target-Date
Great-West Retirement Services has launched an updated set of target-date funds that it believes will address some of the problems that were found with target-date funds in 2008. The average 2010 target-date fund lost 25% in 2008 due to heavy equity exposure.
The Maxim Lifetime Asset Allocation Series offers investors a choice of three distinct glide paths, depending on their risk tolerance, a lifetime approach to investing that extends beyond retirement and third-party advice.
"We waited until now to introduce a target-date product because we wanted to redefine and enhance the target-date fund category," said Charlie Nelson, president of Great-West. "Through the passage of time and the benefit of 20/20 hindsight, it became clear that first-generation target-date funds have some limitations. The Maxim Lifetime Asset Allocation Series addresses those concerns."
Nelson added: "These enhancements result in a strong fiduciary process for plan sponsors and an investment vehicle that helps participants meet their retirement savings goals."
(c) 2009 Money Management Executive and SourceMedia, Inc. All Rights Reserved.
http://www.mmexecutive.com http://www.sourcemedia.com/
