Lending From Within.
Summary paragraph: Securities lending-the loaning of securities by one portfolio to another for a fee-has long been the purview of defined benefit (DB) plans, where it might allow the plan sponsor to turn otherwise "idle" portfolio assets into income-generators. After all, many market activities still require the ability to physically deliver securities, most commonly to prevent a failed sale or to facilitate a short sale.
However, the topic is not limited to defined benefit plan sponsors. While some large 401(k) plans make securities lending agreements directly, most lending affecting these plans happens indirectly, when providers of investment options within a plan do securities lending. Generally disclosed in the fine print of a fund's prospectus, it is often overlooked but should not be. Our cover story, "Treacherous Waters" (page 26), therefore, addresses what plan sponsors should know about the topic so that you can properly educate yourself-and participants-about what might be happening with your plan's assets.
Another topic sometimes misunderstood by participants is that of investing in real estate. Real estate investment trusts (REITs) over the long-term tend to act less like the stock market and reflect inflation. In that way, real estate often plays a strategic role in a target-date portfolio-often being used to help lessen market risk, for example. However, not all target-date funds (TDFs) use real estate in the same way. "Realty Check" (page 52) discusses how target-date funds are using real estate as a way to limit risks such as inflation.
Our monthly Head of the Class department typically focuses on one asset class in the defined benefit portfolio, but in the year-end 2012 installment, "Positive Returns" (page 49), we take a broader investment view and highlight some of the managers who have been able to excel in the challenging markets of the last several years.
Constraints of the printed page don't allow a review of every asset class for all periods, so instead we examine performance for two sectors in equity (large-cap U.S. value and EAFE) and one in fixed income (long-duration strategies), focused on the horizon of three years. (When the magazine is posted online, we will expand the article to include core fixed-income strategies, as well.)
Do you have multiple retirement plans under your responsibility? Are they administered by different vendors or recordkeepers? For those sponsors managing more than one retirement plan-such as both defined benefit and defined contribution (DC), or defined contribution and nonqualified deferred compensation (NQDC)-total retirement outsourcing (TRO) to a single provider may sound attractive. TRO has advantages for plan sponsors, but you need to know what to look for when choosing a provider, and also to consider when this option might not be the best fit for your company. "All in One Basket" (page 46) discusses the pros and cons sponsors should consider before they decide to go with a TRO solution.
Maybe one of the plans you sponsor or have thought about adding is a nonqualified deferred compensation plan. The NQDC business continues to evolve, as does our 2012 NQDC Buyer's Guide (page 30), for those of you looking for a provider to help you implement a new, or service an existing, plan. Given the complexity of the NQDC market, providers can offer a great deal of experience to plan sponsors with the design and administration of these plans, and our guide this year offers a glimpse into a record 26 providers servicing almost 4 million NQDC plan participants and more than $200 billion in long-term liabilities to plan sponsors.
Also inside this issue: a compliance calendar for 2013 (page 40); our Know How section reviewing our participant guides for 2012 (page 23); a Case Sensitive article examining whether the stepchildren of a deceased participant should have been treated as children for the purpose of beneficiaries, if not designated as such (page 58); a Second Opinions piece continuing the plan sponsor "To-Do List" (page 60); and our columnists, with their end-of-year thoughts, beginning on page 62.
As we come to the close of another year, I want to thank you for your continued support of PLANSPONSOR. Our best wishes go out to you and yours for a happy and healthy holiday season and new year!