Investors Remained Loyal to 401(k)s In First Half of 2009, ICI Reports

Although the percentage of people who stopped making contributions to their 401(k) in the first half of 2009 edged up higher from levels throughout 2008, the figure was still a negligible 4.6%, the Investment Company Institute said. In 2008, 3.7% gave up on 401(k) contributions.

The ICI also found that the overwhelming majority of participants are not tapping their plans for withdrawals; in the first six months of 2009, only 1.8% of workers withdrew money from their 401(k) and only 0.9% took hardship withdrawals. The numbers were a bit higher in 2008, with 3.9% of people taking withdrawals and 1.3% taking hardship withdrawals. As of the end of June 2009, 16.3% of defined contribution plan participants had a loan outstanding, in line with historical averages (see chart, opposite page).

And few investors tinkered with their asset allocations in the first half of the year, with only 7.7% changing the composition of their existing balance and 9.3% readjusting the allocation for their contributions.

"As the markets began to regain their footing in the first half of 2009, plan participants persisted in saving for their retirement," noted ICI President and CEO Paul Schott Stevens. "The 401(k) system, with dollar-cost-averaging and the discipline of ongoing contributions, serves investors as they build nest eggs for retirement. ICI will continue to work with regulators and Congress to improve the 401(k) system and find ways to make these plans available to more working Americans."


Investors Plan to Stick With Stocks: Vanguard

Although American investors have grown much more aware of the risks of investing in stocks and have lower expectations for average annual returns, they do still plan to keep them as an integral part of their retirement portfolios, according to a Vanguard survey conducted in late May.

Ninety percent said it is important to invest in equities in the years leading up to retirement, 70% said they will continue to hold equities in retirement, and only 13% thought their retirement had been permanently impaired. Sixty percent said they made no changes to their portfolios during the decline, although 21% reduced equity holdings and 5% sold all equities. Nonetheless, 17% increased their stock exposure.

"Many investors understand the role that equities play in generating portfolio growth to fund several possible decades of retirement and protect against inflation and rising healthcare costs," said Stephen Utkus, head of the Vanguard Center for Retirement Research.

Respondents who bailed out of equities said they had done so not so much because of market risk but because of fear over a job loss or home foreclosure, or because of few years left before retirement.

"The confluence of important economic factors with the market decline quite logically led to a greater sense of insecurity among some individuals," said John Ameriks, head of investment counseling and research and Vanguard. "But broadly speaking, the study results suggest that investors continue to believe equities are an important part of their portfolios despite the worst financial crisis in several generations."


SEC Plans to Pass Money Fund Rules By Year-End

The Securities and Exchange Commission is planning to move ahead and pass new money fund rules by the end of the year and has not ruled out a floating net asset value, Sarah ten Siethoff, senior counsel in the SEC's division of investment management, told the 15th annual Money Fund Forum last week.

In addition, the SEC is likely to pass additional rules next year, she said.

ten Siethoff did not specify which of the proposed rules the SEC will pass except to say it will be many.

The SEC is considering eliminating the stable, $1 NAV requirement that money market mutual funds have long held, by either making the funds have a floating $1 NAV or a $10 NAV.


Funds Take in $6.8 Billion In Week Ended Oct. 14

Investors continued to plow money into long-term mutual funds, investing $6.8 billion in the week ended Oct. 14, the Investment Company Institute said.

The past 31 straight weeks, or nearly eight months, of inflows since the market's bottom on March 9 now total $323 billion.

The buying pattern of the past number of weeks continued, with U.S. stock funds losing $5.28 billion and foreign stock funds taking in $1.89 billion.

Bond funds netted $8.8 billion, down from the $15.21 billion they took in the previous week. Hybrid funds saw $1.38 billion of inflows, up from the $564 million they took in the previous week.

Investors withdrew $40.74 billion from money market funds, iMoneyNet said, leaving a total of $3.339 trillion in the funds.


Russell Offers Enhanced Asset Allocation Approach

Russell Investments has introduced Russell Enhanced Asset Allocation, which using forecasting models to identify unsustainable movements in the market and map out a plan to maximize returns while limiting risk and maintaining adequate liquidity. The strategy covers 11 geographic regions and 11 asset classes and produces 114 asset class pair combinations.

"As the last two years have demonstrated, the markets can move in extremes, and these extremes can represent real investment opportunities," said Pete Gunning, global chief investment officer. The strategy provides "a high-conviction approach for investors to respond to markets that are at very likely unsustainable levels. We have offered this service to select clients and are now offering it broadly to allow clients the flexibility to shift their investment portfolio based on the insights of Russell's global network of investment strategists and market researchers."

The enhanced services will initially be offered only to institutional clients and then to defined contribution plans and other retail investors.


Moody's Downgrades Fidelity Parent's Debt

Moody's Investors Service has downgraded the long-term senior debt of FMR, the parent company of Fidelity, from A2 to A1, citing profit margins not meeting expectations.

As of December 2008, the company's gross debt was $8.3 billion, including $2.1 billion in debt owed to outside investors. The remaining $6.2 billion was internal debt.

Nonetheless, Fidelity spokeswoman Anne Crowley said the downgrade and the debt levels are not a concern since the company is "on solid financial footing" with a "very strong balance sheet" and has continued plans to "invest significantly to further develop our businesses."


FINRA Fines Morgan $90k For Unreasonable Trades

The Financial Industry Regulatory Authority has fined Morgan Stanley $90,000 for buying and selling corporate and municipal bonds at unfair and unreasonable prices.

Though most of the unfair markups and markdowns were tied to 11 trades of corporate securities during the 2003 calendar year, FINRA found three trades of municipal bonds during the same period were bought or sold "at an aggregate price that was not fair and reasonable, taking into consideration all relevant factors, including the best judgment" of the dealer.

Without admitting or denying the charges, Morgan Stanley agreed to the fine as well as $40,605.81 in restitution to its customers, of which $5,858.49 was made to customers involved in the municipal transactions.

Of the three muni transactions, one was marked down 22.98% and two were marked up 7.41% and 6.98%. FINRA found that the firm's conduct violated the Municipal Securities Rulemaking Board's Rule G-17 on fair dealing as well a G-30 on fair pricing.

As a general guideline, markups or markdowns of 5% or more are excessive, though there is no bright-line test and regulators consider a variety of factors in determining if a price is unfair, sources said. A spokeswoman for Morgan Stanley declined to comment on the FINRA action.


Invesco to Acquire Van Kampen for $1.5B

Invesco is acquiring the retail asset management business of Morgan Stanley, including Van Kampen, for $1.5 billion in cash and stock. Invesco is paying $500 million in cash and tendering 44.1 million shares representing $1 billion in Invesco equity that will give Morgan Stanley a 9.4% minority stake. Morgan will continue to manage $267 billion in institutional assets.

"We are excited to expand the depth and breadth of our investment strategies, which will enable us to offer our clients a truly comprehensive range of investment capabilities through an expanded set of investment vehicles," said Martin L. Flanagan, Invesco president and CEO.

The deal is expected to close in the middle of next year. Other suitors were said to include Franklin Resources and Federated Investors. Morgan Stanley acquired Van Kampen in 1996 for $1 billion.


Prudential Launches 'Morse Code SOS' Ads

Prudential Financial on Oct. 18 launched its "Morse Code SOS" advertising campaign touting the 401(k) administration and healthcare insurance services it offers U.S. companies.

The print ads show Prudential answering SOS calls from companies looking for help with their retirement plans, asset management and group life insurance needs. The headline copy on the ads ask, "Who can help rescue our 401(k) plans? Who can steer us through uncertain markets? Who can save us from the risks of disability? Who? Pru."

The campaign will also include Internet ads, signs at airports, elevator advertisements and an electronic billboard in Times Square.

"Companies are looking for help to address the unprecedented challenges they face as a result of the financial crisis, the continuing difficult economic environment and long-term business trends," said Bernard Winograd, chief operating officer of U.S. businesses at Prudential.


Allianz Wins Annuity Case

Allianz Life Insurance Co. has beaten a class action lawsuit. A federal jury ruled against the plaintiffs in the case, Mooney v. Allianz Life Insurance Co.

Filed more than four years ago, the suit alleged that Allianz fraudulently marketed certain annuity products as providing an immediate bonus, when the bonus was not fully available until years after the products were purchased.

Allianz Life President and CEO Gary Bhojwani said the company was pleased with the decision, and stressed the company has some of the most stringent sales oversight policies and procedures in the industry.


(c) 2009 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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