Workplace savings plans: The value of daily valuation

Doug DeNigris

By Doug DeNigris
Taft-Hartley National Practice Leader for MassMutual Workplace Solutions.
Posted on Nov 23, 2020

Union tradespeople have tremendous respect for their brothers and sisters whose skill and expertise help build America. The bonds built while working side-by-side help jobs go smoothly and often last a lifetime.

But does that cooperation extend to potentially absorbing fellow trade workers’ market losses in retirement savings? Do workers who participate in a trustee-directed, Taft-Hartley retirement savings plan that lacks daily valuation realize that their saving could be impacted (positively or negatively) by circumstances outside their control?

The combination of a non-daily valuation plan, a volatile stock market and flexible plan participant withdrawal provisions may disproportionately affect members taking distributions and those who remain in the plan. In a rising market, members taking distributions receive less than the actual value of their investment. While in a declining market, members remaining in the plan absorb the loss associated with the member who took the distribution. All of this gives rise to potential fiduciary liability concerns for the Board of Trustees. Fortunately, it’s a situation that can be rectified by a retirement plan provider that offers state-of-the-art daily valuation services.

The underlying challenge is that the withdrawal is based on the last valuation of plan assets, which in an annually valued plan could be 12 months ago. Valuing a withdrawal based on dated pricing is like constructing a building with outdated blueprints.

Since the Great Depression, there have been eight bear markets, defined as stock prices falling by 20 percent or more.1 The average bear market lasted 1.4 years and posted an average cumulative loss of 41 percent. Two of those bear markets have occurred within the past two decades.

The good news is that there have also been nine bull markets since 1926, with the latest lasting 11 years and counting.1 But if your plan lacks daily valuation, the combination of stock market volatility and unfortunate timing could unintentionally hurt your membership’s ability to retire.

Over the past decade requests for transparency, reduction in costs and technology enhancements have driven many boards of trustees to migrate to daily valuation. However, we believe that a quarter of all Taft-Hartley defined contributions plans are still periodically valued. Based on a number of the items listed below we believe that members will continue to urge trustees to consider daily valuation:

  • Protecting participants from being adversely and unfairly affected by distributions taken between previous annual valuations;
  • Ensuring members receive distribution amounts that reflect the current market price of the underlying assets.
  • Real time access to current account information, on the web, over the phone and on mobile devices. Members are able to review contribution history, including contractor name and hours details.
  • Timely delivery of quarterly account statements.
  • Integration with real time retirement planning tools.

Massachusetts Mutual Life Insurance Company has been helping Taft-Hartley plans transition to daily valuation for decades. Whether you maintain your trustee-directed plan or move to a participant-directed program, your members can still enjoy the benefits of daily valuation.

Transitioning to a daily valuation plan will provide your membership with more accurate tools to plan their retirements. If you are interested in learning more about the benefits of daily valuation click here.

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1History of U.S. Bear & Bull Markets Since 1926, First Trust Advisors L.P., Morningstar. Returns from the Standard & Poor’s Index,1926 - 3/31/17, https://www.raymondjames.com/neunuebelbarrantes/pdfs/history-of-market-corrections.pdf

The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.