Home' Trinidad and Tobago Guardian : February 16th 2017 Contents FEBRUARY 16 • 2017 guardian.co.tt BUSINESS GUARDIAN
INTERNATIONAL | BG21
US states pursue
plans to help
States are moving for-
ward with new initi-
atives to help workers
save for retirement,
even as the Repub-
tries to block rules making it easier
for them to do so.
Studies show a sharp divide in re-
tirement savings between those who
have employer-sponsored plans and
those who do not. The state programs
are designed to fill in the gap.
Dozens of small business owners
recently gathered in Schaumburg,
Illinois, to learn about the new
state-sponsored retirement sav-
ings initiative, "Secure Choice IRA."
Officials said it could help about 1.2
million workers who don't have ac-
cess to an employer-sponsored re-
"It's clear there's a retirement
crisis," Illinois Treasurer Michael
W Frerichs told the small business
"This is a problem not only for the
families but for all of us."
Seven states---California, Con-
necticut, New Jersey, Maryland,
Oregon and Washington, in addition
to Illinois---are in various stages of
implementing state-sponsored re-
tirement savings plans.
California's plan will automatically
enroll about 6.8 million employees.
Employees can opt out of the plan
and employers are not required to
match contributions. Payroll deduc-
tions are expected to start in 2018.
The plans with automatic payroll
deduction are IRAs and are tax-de-
ductible, which means employees get
a tax incentive because they don't pay
federal taxes on the money saved for
retirement until they're withdrawn.
The states programmes were
helped along by Labour Department
rules governing automatic-enroll-
ment and payroll deductions.
But Congress is moving to block
those rules. A House vote is sched-
"Our nation faces difficult retire-
ment challenges, but more govern-
ment isn't the solution," Rep Tim
Walberg, R-Mich, the chairman of
the House subcommittee on health,
employment, labour and pension,
said in a statement. "A better way is
to reduce costly red tape and make it
easier for small businesses to band
together to offer retirement plans for
Walberg said there were concerns
that these new retirement plans dis-
couraged small businesses from of-
fering private-sector plans and had
A spokesman for Labour Secre-
tary-nominee Andrew Puzder said
it would be "premature" for the fast-
food executive to comment on this
issue before being confirmed.
At least 30 states have consid-
ered proposals to study or establish
state-sponsored retirement savings
plans over the past five years, accord-
ing to the Centre for Retirement In-
itiatives at Georgetown University.
The Labour Department estimates
that as many as 70 million workers
Americans without work-spon-
sored savings plans are less likely
to save for retirement. Research
from the nonpartisan research or-
ganisation Employee Benefit Re-
search Institute shows that 62 per
cent of employees with an em-
ployer-sponsored savings plan had
more than US$25,000 in savings and
22 per cent of those workers saved
US$100,000. By contrast, about 94
per cent of workers without access to
those plans had less than US$25,000,
according to the 2014 study.
Those at the lower end of the in-
come distribution are hit particular-
ly hard, with many relying solely on
Social Security when they retire, ac-
cording to the Center for Retirement
Research at Boston College.
"States win when more people
are prepared for retirement and fi-
nancially ready to be self-sufficient,
which reduces the need for state
spending on elder-support pro-
grammes," said Gerri Madrid-Davis,
AARP Director of State Advocacy and
Democratic state Sen Daniel Biss,
who introduced Illinois' programme,
has called it the "most efficient and
least intrusive way" to help people
save for retirement while putting
little burden on the state's employers.
But Mark Grant, Illinois director of
the National Federation of Independ-
ent Business, says it adds to a long
list of mandates small businesses
have to fulfill.
"If a business can afford to do this
kind of thing, they would do it for
their employees," Grant said.
The plan, passed in 2015, limits
participation to small businesses that
have been open for more than two
years and have at least 25 employees.
The state hopes to fully implement
it by 2018.
Jennifer Piacenza, operations
manager for Palatine Welding Com-
pany, said she's excited about Secure
Choice but worries that the 35 em-
ployees at her family business won't
take advantage of it.
"We offered a retirement pro-
gramme to our employees and peo-
ple didn't participate," Piacenza said.
"We couldn't maintain it." AP
After years of faltering, stock pickers see signs of hope
They're some of the most-shunned people in
investing, and if there were ever a time for them
to make a last stand, it's now.
After watching hundreds of billions of dol-
lars head out the door, stock-picking managers
of mutual funds say conditions are starting to
turn in their favour, and they're in the best position in years
to finally beat index funds. A lot is riding on whether they
do. Predictions for the death of stock picking aren't slowing,
and they're coming closer to truth with each dollar saying
goodbye to the industry.
"The revenge of active management" is one of the themes
that strategists at Jefferies see for 2017, for example. Even so,
they say that a good year for stock pickers wouldn't be enough
to reverse the tide underway from actively managed funds into
their index-fund rivals. It would likely just slow the movement.
The migration has been happening for years for simple rea-
sons: Index funds have performed better than ones run by
stock pickers, and they have lower fees. For the average actively
managed fund, US$84 of every US$10,000 invested went to
cover costs in 2015, according to the Investment Company
Institute. Index funds charge less because they merely try to
track the S&P 500 and other indexes, rather than beat them.
Average expenses for stock index funds were US$11 of every
That head start means actively managed funds need to per-
form better than the index just to match its performance. And
only a select few have done so recently.
Just 15 per cent of actively managed large-cap stock funds
beat the S&P 500 over the 10 years through June 2016, according
to S&P Dow Jones Indices. The last year the majority of actively
managed large-cap stock funds beat the S&P 500 was 2007.
The difference in performance means investors favored index
funds by a record margin last year, according to Morningstar.
They pumped nearly US$505 billion into index funds, while
withdrawing $340 billion from their actively managed rivals.
Active managers see cause for optimism. Among the reasons
they say the table is no longer tilted so much against them:
--- A more diverse market
For years, stocks often moved in unison. During the financial
crisis, nearly everything crashed on the threat that the global
economy may collapse. In ensuing years, stocks rose en masse
after stimulus from central banks around the world helped to
provide a rising tide.
It's a concept called correlation, and when it's high, stocks
are moving together in herds, and stock pickers have less of
a chance to differentiate themselves from the index. There's
less of a reward for avoiding losers or identifying winners if
everything's behaving the same way.
Now that the Federal Reserve has ended its bond-buying
stimulus program and begun to slowly raise interest rates,
analysts expect stocks to move more independently. The Fed
raised rates in December for just the second time in a decade,
and more increases are expected in 2017.
Instead of focusing on the effects of the Fed's stimulus, mar-
kets will pay more attention to how individual companies are
performing, the thinking goes. Average stock correlations are
now close to their lowest level in years, according to Goldman
That has stock pickers optimistic that they'll be able to
separate out winners from losers, and that they'll once again
get rewarded for it.
--- A more volatile market
President Donald Trump came into office promising to shake
things up, and market watchers expect that to result in bigger
swings for stocks. Big changes in policy may be coming, from
how much businesses pay in taxes to how connected the U.S.
economy remains with the rest of the world's, and the height-
ened uncertainty could make things bumpy.
While that can be a scary thing for investors focusing on
their retirement accounts, stock-picking fund managers often
welcome higher volatility. When a stock they like and have been
following for a while drops in price, they say it gives them the
opportunity to buy low.
Regardless of whether stock pickers find 2017 more welcom-
ing for their style than earlier years, many experts say the first
focus for fund investors should remain on keeping costs low.
Conditions may be improving for stock pickers, but just be-
cause they get more opportunities doesn't mean they'll always
take advantage of them. A fund with low costs, meanwhile,
will always begin with a head start over higher-cost funds.
Index funds have lower costs than ones run by stock pickers,
but even within actively managed funds, there can be a wide
range of fees.
Studies have shown that funds with the lowest expenses
tend to have the best returns, no matter how well-liked or
shunned their managers are.
AP's Stan Choe
In this photo provided by Maria Zamudio, taken Feb 9, 2017, Illinois
Treasurer Michael Frerichs talks to small business owners about Secure
Choice IRA, a state-sponsored retirement savings plan, in Schaumburg,
Illinois. States are moving forward with new initiatives to help workers
save for retirement, even as the Republican-led Congress tries to block
rules making it easier for them to do so. AP
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