The average 401(k) plan offers a variety of investment options

The average large 401(k) plan offered 27 investment options — including a mix of equity funds, bond funds, and target date funds, according to a recent study by BrightScope and the Investment Company Institute (ICI). © Shutterstock “Employers recognize the importance of being able to customize the design of their 401(k) plans to suit their […]

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The average large 401(k) plan offered 27 investment options — including a mix of equity funds, bond funds, and target date funds, according to a recent study by BrightScope and the Investment Company Institute (ICI).

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“Employers recognize the importance of being able to customize the design of their 401(k) plans to suit their workforces, which is one of the strengths of the 401(k) system,” Sarah Holden, ICI’s senior director of retirement and investor research, said. “Employers use the flexibility of the 401(k) system—including a wide variety of investment options and the structure of employer contributions—to build plans that encourage employee participation and make it easier for participants to plan and save.”

It also found that plan fees continue to decline.

“The 401(k) marketplace is constantly evolving, and with that, the overall costs of 401(k) plans for participants have declined,” Brooks Herman, vice president of data and research at BrightScope, said. “There are a variety of factors contributing to the decrease of fees and expenses in plans, including increased competition and the growing size of the 401(k) marketplace, as well as public disclosure of plan costs. All of these factors benefit participants and help them continue to grow their retirement nest eggs.”

The study also revealed that 85 percent of large 401(k) plans offered employer contributions. Employer contributions most commonly are structured as a simple matching contribution. Additionally, nearly 60 percent of larger 401(k) plans automatically enrolled their participants.

Finally, all large 401(k) plans included domestic equity funds, international equity funds, and domestic bond funds. Also, 80 percent of large 401(k) plans offered target-date funds while 69 percent offered guaranteed investment contracts (GICs) and 65 percent offered other types of balanced funds. In addition, 44 percent offered money funds, and 30 percent offered international bond funds.

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FSB issues report on compensation practices for banks

The Financial Stability Board (FSB) published a progress report on the principles and standards for sound compensation practices in financial institutions.© Shutterstock The report examined how compensation practices have evolved since the principles and standards were first published in 2009. The report confirmed that all FSB jurisdictions had implemented the principles and standards for sound […]

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The Financial Stability Board (FSB) published a progress report on the principles and standards for sound compensation practices in financial institutions.

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The report examined how compensation practices have evolved since the principles and standards were first published in 2009.

The report confirmed that all FSB jurisdictions had implemented the principles and standards for sound compensation. Most banks have put in place practices and procedures to reduce the potential for inappropriate risk-taking, but further work is required to validate that practices and procedures operate effectively.

The report also found that boards appear more active and engaged with oversight of compensation processes. Further, compensation arrangements now have longer time horizons and include mechanisms that better align them with effective risk management practices.

The report said the challenge going forward is developing frameworks for assessing the effectiveness of compensation policies and practices in balancing risk and reward. Supervisors will need to ensure that compensation remains aligned with prudent risk-taking, and reflects risks and vulnerabilities as they emerge.

This is the FSB’s sixth progress report on the implementation of the principles and standards.

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Index determines CEO projections reserved

The Business Roundtable’s Q2 2019 CEO Economic Outlook Index has determined CEO expectations for sales and plans for capital spending over the next six months are healthy but decreased.© Shutterstock “The second quarter CEO survey was in the field during a turbulent few weeks for U.S. trade relations with China and Mexico,” Jamie Dimon, chairman […]

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The Business Roundtable’s Q2 2019 CEO Economic Outlook Index has determined CEO expectations for sales and plans for capital spending over the next six months are healthy but decreased.

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“The second quarter CEO survey was in the field during a turbulent few weeks for U.S. trade relations with China and Mexico,” Jamie Dimon, chairman and Chief Executive Officer of JPMorgan Chase & Co. and chairman of Business Roundtable, said.”Business leaders are ready and eager to invest and hire in the United States. Yet, the uncertainty over trade policy is making it more difficult for companies to invest and operate confidently. The Administration and Congress can remove trade uncertainty by working together on policies that will fortify U.S. trading relationships and expand international commerce for the benefit of America’s workers, families, and communities.”

The CEO Economic Outlook Index decreased 5.7 points in the second quarter to a value of 89.5, officials said, which exceeds the Index’s historical average of 82.6 and signals a continued positive direction for the U.S. economy.

The analysis showed CEO plans for hiring decreased 5.2 points to 75.2, plans for capital investment decreased 2.9 points to 88.1, and expectations for sales decreased 8.9 points to 105.1.

“The second quarter CEO survey was in the field during a turbulent few weeks for U.S. trade relations with China and Mexico,” Joshua Bolten, Business Roundtable president and CEO, said. “Business leaders are ready and eager to invest and hire in the United States. Yet, the uncertainty over trade policy is making it more difficult for companies to invest and operate confidently. The Administration and Congress can remove trade uncertainty by working together on policies.”

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FSB delivers report to G-20 officials on decentralized financial technologies

The Financial Stability Board (FSB) published a report that looks at the financial stability, regulatory and governance implications of the use of decentralized financial technologies.© Shutterstock Specifically, the report focuses on technologies that may reduce or eliminate the need for intermediaries or centralized processes that have traditionally been involved in the provision of financial services. […]

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The Financial Stability Board (FSB) published a report that looks at the financial stability, regulatory and governance implications of the use of decentralized financial technologies.

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Specifically, the report focuses on technologies that may reduce or eliminate the need for intermediaries or centralized processes that have traditionally been involved in the provision of financial services. This typically involves the decentralization of decision-making, risk-taking or record-keeping. There are also examples of decentralization in payments and settlement, capital markets, trade finance, and lending.

It was delivered to G20 Finance Ministers and Central Bank Governors for their meeting in Fukuoka that took place June 8-9.

The report says the application of decentralized financial technologies could result in more financial stability. It may lead to greater competition and diversity in the financial system and reduce the systemic importance of some existing entities. In other ways, however, the use of decentralized technologies may entail risks to financial stability. These include the emergence of concentrations in the ownership and operation of key infrastructure and technology, as well as a greater degree of risk-taking. Further, uncertainties around the determination of legal liability and consumer protection may impact public trust in the financial system.

A more decentralized financial system may reinforce the importance of an activity-based approach to regulation. Also, certain technologies may challenge the technology-neutral approach to regulation taken by some authorities.

The FSB brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. It is chaired by Randal Quarles, vice chairman for supervision, US Federal Reserve. Klaas Knot, president, De Nederlandsche Bank, is the vice chair. The FSB Secretariat is located in Basel, Switzerland.

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KPMG examines CEO outlook

A newly released KPMG report has determined chief executives are confident in the growth prospects of domestic and global economies over the next three years.© Shutterstock “U.S. CEOs are highly confident and laser-focused on making their organizations more resilient in the face of various risks that threaten the growth of their companies,” KPMG Chairman and […]

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A newly released KPMG report has determined chief executives are confident in the growth prospects of domestic and global economies over the next three years.

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“U.S. CEOs are highly confident and laser-focused on making their organizations more resilient in the face of various risks that threaten the growth of their companies,” KPMG Chairman and CEO Lynne Doughtie said. “Amid constant disruption and change, proactive leaders are executing agile, multi-faceted growth strategies that include M&A, alliances with third parties, investment in emerging markets and accelerating innovation and collaboration within their organizations.”

The findings reported that 53 percent of respondents are very confident in the growth prospects of the domestic economy, while 53 percent are very confident in the growth prospects of the global economy. Additionally, 50 percent predict top-line revenue growth in the 2 to 5 percent range with 43 percent predicting less than 2 percent.

When prioritizing between buying new technology or developing their workforce to improve their organization’s resilience, the CEO analysis favored technology two-to-one, and 70 percent said they are planning to up-skill 41 to 60 percent of their organization’s workforce with new digital capabilities over the next three years.

KPMG is one of the world’s leading professional services firms, providing business solutions and audit, tax, and advisory services to some of the world’s largest and most prestigious organizations.

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Report examines companies climate change risks

A newly released CDP Financial study maintains worldwide companies representing nearly $17 trillion in market capitalization have valued the climate risks to their businesses at almost $1 trillion.© Shutterstock “The goalposts for climate action have never been clearer for companies,” Nicolette Bartlett, CDP’s director of Climate Change, said. “Our analysis shows that there are a […]

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A newly released CDP Financial study maintains worldwide companies representing nearly $17 trillion in market capitalization have valued the climate risks to their businesses at almost $1 trillion.

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“The goalposts for climate action have never been clearer for companies,” Nicolette Bartlett, CDP’s director of Climate Change, said. “Our analysis shows that there are a multitude of risks posed by climate change, including impaired assets, market changes and physical damages from climate impact, as well as tangible impacts to business bottom lines.”

The analysis also determined that only half of the fossil fuel companies in the Global 500 provided any financial figures for the substantive risks and opportunities identified; power companies represent one of the few industries where the costs to manage risks outweigh their impact on the business; and disclosures centered around the substantial costs associated with updating existing power plant infrastructure.

“Following the recommendations of the UN’s IPCC report, our collective response to climate change is more urgent than ever, and it is clear that corporate action cannot be delayed,” Bartlett said. “So it is hugely encouraging that companies are reporting that the potential value of climate opportunities far outweigh the costs of investing in the transition.”

The report determined over 80 percent of firms see major climate impacts, including extreme weather patterns, rising global temperatures, and increased pricing of greenhouse gas emissions.

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American Bankers Association adds nine banks to ABAQ

The American Bankers Association (ABA) recently added nine institutions to the ABA NASDAQ Community Bank Index (ABAQ), increasing the index to include a total of 328 community banks with $255 billion in market capitalization.© Shutterstock The ABAQ is the most broadly representative stock index for community banks and remains an essential tool for giving banks […]

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The American Bankers Association (ABA) recently added nine institutions to the ABA NASDAQ Community Bank Index (ABAQ), increasing the index to include a total of 328 community banks with $255 billion in market capitalization.

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The ABAQ is the most broadly representative stock index for community banks and remains an essential tool for giving banks more visibility with analysts and investors.

The index includes all banks and savings associations or their holding companies listed on the NASDAQ, with the exception of any of the 50 largest bank and thrift charters based on asset size, banks classified as having an international specialization and banks classified as having a credit card specialization.

The index is reported daily as a total return index, which means the value of reinvested dividends is included in the calculation, and total return index is commonly used as a benchmark in proxy statements.

The nine additions include 1895 Bancorp of Wisconsin, Inc. in Greenfield, Wis.; Carter Bank & Trust in Martinsville, Va.; Cortland Bancorp in Cortland, Ohio; First National Corporation in Strasburg, Va.; MainStreet Bancshares, Inc. in Fairfax, Va.; MBT Financial Corp in Monroe, Mich.; Mercantil Bank Holding Corporation in Coral Gables, Fla.; PCSB Financial Corporation in Yorktown Heights, N.Y.; and Rhinebeck Bancorp, Inc. in Poughkeepsie, N.Y.

It was noted East West Bancorp, Inc. (EWBC) no longer qualifies under the criteria for inclusion in the ABAQ index, as it currently holds one of the 50 largest banking charters.

ABA serves as the voice of the nation’s $17.9 trillion banking industry. The association is composed of small, regional and large banks employing more than 2 million people, safeguarding nearly $14 trillion in deposits and extending more than $10 trillion in loans.

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GAO recommends actions to CFPB on private student loan rehab programs

The Government Accountability Office (GAO) is recommending that the Consumer Financial Protection Bureau (CFPB) clarify which financial institutions have the authority to offer private student loan rehabilitation programs.© Shutterstock Private student loans, which are not guaranteed by the federal government, are offered by many banks. But the largest banks that provide private student loan told […]

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The Government Accountability Office (GAO) is recommending that the Consumer Financial Protection Bureau (CFPB) clarify which financial institutions have the authority to offer private student loan rehabilitation programs.

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Private student loans, which are not guaranteed by the federal government, are offered by many banks. But the largest banks that provide private student loan told the GAO that they do not offer private student loan rehabilitation programs. Loan rehabilitation programs allow financial institutions to remove reported defaults from credit reports after borrowers make a number of consecutive, on-time payments. The banks do not offer them because they say few private student loan borrowers are in default and they already offer existing repayment programs to assist distressed borrowers.

Additionally, while some nonbank private student loan lenders do offer rehabilitation programs, others do not because they believe the Economic Growth, Regulatory Relief, and Consumer Protection Act does not allow them to do so.

Thus, the GAO said clarification by the CFPB, which oversees credit reporting and nonbank lenders, is necessary to allow more borrowers to participate in these programs. Specifically, the GAO said the director of the CFPB should provide written clarification to nonbank private student loan lenders on their authorities to offer private student loan rehabilitation programs that include removing information from credit reports. The GAO also said the CFPB, after consulting with the prudential regulators and relevant industry groups, should provide written clarification on what information in a consumer’s credit report constitutes a private student loan reported “default” that may be removed after successful completion of a private student loan rehabilitation program.

The CFPB, however, does not plan to take action on the first recommendation and said it was premature to take action on the second recommendation. The GAO maintains that both recommendations are valid, as discussed in this report.

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Survey examines home pricing, future outlook

Findings from the Federal Reserve Bank of New York’s 2019 SCE Housing Survey determined households expect home prices to rise at a slower pace relative to last year.© Shutterstock A majority of households continue to view housing as a good financial investment, although the share believing that housing is a very good investment declined in […]

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Findings from the Federal Reserve Bank of New York’s 2019 SCE Housing Survey determined households expect home prices to rise at a slower pace relative to last year.

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A majority of households continue to view housing as a good financial investment, although the share believing that housing is a very good investment declined in all regions.

The survey is part of the broader Survey of Consumer Expectations (SCE). The findings are from the sixth installment of the SCE Housing Survey, which has been fielded annually since 2014.

The findings showed average home price change expectations at both the one- and five-year horizons fell relative to last year, and households’ perceived downside risk in home prices increased slightly. Attitudes toward housing as a financial investment remained strongly positive, with 65 percent of all respondents believing buying property in their zip code is a very good or somewhat good investment, the same level as in 2018. Also, households perceive mortgage rates, in general, have risen about 40 basis points since last year, and that the rate they would be offered has risen about 30 basis points.

The SCE Housing Survey provides rich and high-quality information on consumers’ experiences, behaviors, and expectations related to housing.

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OCC report looks at key themes, risks for banks

In its Semiannual Risk Perspective for Spring 2019, the Office of the Comptroller of the Currency (OCC) outlined the key themes and risks for the federal banking system. © Shutterstock The report said credit quality is strong when measured by traditional performance metrics. However, it points out that successive years of growth, incremental easing in […]

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In its Semiannual Risk Perspective for Spring 2019, the Office of the Comptroller of the Currency (OCC) outlined the key themes and risks for the federal banking system.

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The report said credit quality is strong when measured by traditional performance metrics. However, it points out that successive years of growth, incremental easing in underwriting, risk layering, and building credit concentrations could result in accumulated risk in loan portfolios.

Also, it said that operational risk is elevated as banks adapt to a changing and increasingly complex operating environment. Some of the key drivers for operational risk include persistent cybersecurity threats as well as innovation in financial products and services. In addition, another driver is the increasing use of third parties to provide and support operations that are not effectively understood, implemented, and controlled.

Further, the report found that compliance risk related to Bank Secrecy Act/Anti-Money Laundering (BSA/AML) is high as banks remain challenged to manage money laundering risks. Additionally, interest rate risk and the related liquidity risk implications pose potential challenges to earnings given the uncertain rate environment, competitive pressures, changes in technology, and untested depositor behavior.

Among a variety of other topics, the report also highlights financial innovation and related impacts on strategic risk.

The report covers risks facing national banks and federal savings associations based on data as of year-end 2018. It focuses on issues that pose threats to financial institutions regulated by the OCC.

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