Market Recap: RISI Crow’s Construction Materials Cost Index
A price index of lumber and panels used in actual construction for May 24, 2013
*Western – regional species perimeter foundation; Southern – regional species slab construction.
Crow’s Market Recap — A condensed recap of the market conditions for the major North American softwood lumber and panel products as reported in Crow’s Weekly Market Report.
Lumber: Weakness in the SPF lumber market created a bevy of lower selling prices at the mill level, dependent on what a particular mill needed to sell, how quickly those volumes needed to move and what buyers were willing to pay. Production continued to outpace demand in the Southern Pine lumber market, forcing most dimension prices lower. Producers often sold mixed truckloads at a sporadic pace. Prices in the Coastal species lumber market declined. Perceptions regarding an oversupplied market remained widespread, and a few traders questioned whether mills might need to cut production. Control of the Inland species lumber market remained in the hands of buyers, who made their purchases very selectively. Weakness in futures, as well as low prices for SPF, were mentioned as contributing factors to soft prices. Most purchases were discounted The market for Radiata Pine Mldg&Btr was firm, steady and balanced, with little change in pricing. Ponderosa Pine Moulding and Shop producers reported limited supplies of wood, although buyers indicated they were seeing more offerings from mills. Weak lumber futures contributed to the bearish attitude existing throughout much of the market. Market activity for Ponderosa Pine Selects and Commons remained lackluster. Mixed loads were the norm, and most came with a counter to mill asking levels. Activity for ESLP boards remained steady. Supplies of Industrial grade Eastern White Pine were tight and buyers continued to look for coverage. A wide range of prices for Idaho White Pine were reported. Western Red Cedar producers experienced various levels of sales activity. Growing takeaways from distribution and retail yards prompted replenishment buying from mills, while other yards filled-in with highly mixed volumes.
Panels: In spite of efforts by producers to firm OSB prices up, weakness in the market persisted. Contract wood continued to undermine mills’ efforts to build order files based on open market sales. The Southern Pine plywood market remained weak but not to the degree as in previous weeks. Buyers continued to purchase conservatively, cautious of the potential for more downside in prices. Western Fir plywood producers did what was needed to sell volumes while trying not to give too much ground in the way of pricing. Buyers remained cautious, purchasing prompt shipping volumes to fill immediate needs. The market for Canadian plywood continued to struggle. Distributors, for the most part, concentrated on moving contract commitments. Even though several producers were not laying up sheathing, the impact was negligible on market prices. Particleboard producers in the Southeast continued to sell strong volumes. Less availability prompted eastern particleboard buyers again to look west to those plants for coverage. MDF sales were steady and prices remained very firm.
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Home businesses hire veterans
Phoenix-area home repair companies Goettl Good Guys Air Conditioning Repairmen and The Sunny Plumber have reached out to local military organizations that are focused on finding employment opportunities for servicemen and women. The companies encourage similar organizations in Arizona to contact them to see what job placement opportunities can be secured.
“Goettl Good Guys and The Sunny Plumber are intensely proud to reach out and provide some security to the heroes who have given up so much to defend our country,” said Dan Burke, CEO of Phoenix Peach, the investment fund that owns the repair businesses. “As a former Navy serviceman, I am acutely aware of the pressures to assimilate back into civilian life after military service. Hopefully, our companies’ efforts will ensure these brave men and women establish long-term careers, and in industries that pair well with training that many receive in the armed forces, like equipment maintenance and repair.”
The companies have previously shown support for veterans throughout Arizona as well. At local American Legion Posts, Goettl Good Guys has helped solve air filtration and air conditioning systems challenges, and has introduced a military discount program for veterans and their families. Goodrich asserts the companies will continue to show support for former military in the future through additional service offerings like this and by hiring former military servicemen and women for years to come.
“Building a workforce of technicians from disciplined military backgrounds will only advance the companies’ commitment to providing high-quality services,” Goodrich said. “Phoenix Peach will continue shaping these two companies to stand out for their community service and rapid repair of technology and plumbing at our neighbors’ homes.”
How 401(k) match thresholds and default rates affect savings
“Automatically enrolling employees into a 401(k) plan at a 6% salary default rate, rather than at the more common 3% default, means a higher savings rate for more people,” said Dallas Salisbury, president and CEO of the nonprofit Employee Benefit Retirement Institute, at a May 9, 2013, EBRI-sponsored policy forum on how plan-design decisions affect adequate retirement savings, held in Washington, D.C. “It’s more effective than encouraging greater savings through communications and education.”
“Participants look at the default rate and say, ‘My employer is telling me 3% is a good place to be,’ ” said Dan Campell, leader of consultancy Aon Hewitt’s defined contribution practice.
“In the end a majority will be led to success or failure based on plan design,” concurred Stacy Schaus, executive vice president and leader of investment firm PIMCO’s defined contribution practice. “Let’s get the defaults right because that’s where people are most likely to stay.”
According to Schaus, critical plan aspects include:
• Getting workers into the plan.
• Escalating employees’ savings rate over time.
• Encouraging broad diversification to reduce portfolio risk, through strategies such as investing in target-date funds that shift to less volatile assets as the designated retirement date nears.
• Communicating the importance of staying the course and remaining invested despite short-term market volatility.
Campell said that Aon Hewitt’s research shows that 70% of large plans have adopted automatic enrollment. Of these, 52% also have automatic escalation, and most of these (64%) escalate in 1% annual increases, up to 10% of deferred pay.
There are outliers, however: 8% of plans with auto escalation will raise rates up to a target default of 15% of pay; another 8% use a target default of 25% of pay.
‘Paper, Rock, Scissors’
In addition to auto enrollment, there are several levers to increasing contribution rates, including “stretch matching,” said Lori Lucas, executive vice president and defined contribution leader at consultancy Callan Associates. A stretch match involves raising the match threshold from, say, 6% to 10% of deferred pay. To keep the employer’s contribution cost neutral, plan sponsors would reduce the match amount from 50% on the dollar to something less.
“For the most part, plan sponsors are saying that the optimal savings rate would be at least 10% of pay, including the plan sponsor and participant contributions. And yet that’s not how most plans are structured from a behavioral standpoint,” Lucas observed.
Studies have found that the typical match is 50% on the dollar, up to 6% of a participant’s deferred pay. As noted, the typical automatic enrollment default rate is only 3% of deferred pay. “That’s not going to get participants up to a 10% savings rate if that’s where they stay,” she said.
Lucas discussed findings by researchers led by James Choi at Harvard University that showed the following: Company A offered voluntary enrollment and no employer matching contribution. It then introduced a match with a threshold of up to 4% of deferred pay. Soon after, participant contribution rates tended to cluster at the new 4% match threshold.
“People were saving to the threshold, which tended to pull up those saving less than 4% but also pulled down some of those saving more than 4%,” Lucas said.
In another Harvard research finding, Company B offered a matching contribution in a range of 25% to 100% on the dollar (depending on the division in which an employee worked), up to a match threshold of 6% of deferred pay companywide. Regardless of the percent on the dollar matched, deferral rates peaked at the 6% match threshold, again showing a cluster effect.
Auto enrollment beats match threshold
The Harvard researchers next looked at auto enrollment plans with varying matching structures. When auto default was set at 3% of pay, most participants were clustered at the 3% rate even though there was a 4% match threshold.
“There is evidence that the match threshold, while powerful under voluntary enrollment, loses a lot of its power under auto enrollment,” Lucas said. “In the game of paper, rock, scissors, default contribution rates beat match thresholds in terms of influencing savings behavior. The default savings rate under automatic enrollment is a very powerful motivator.”
Plan sponsors can better design their plans to promote participation and savings rates while controlling employer costs, Lucas pointed out. For example, Company C has auto enrollment, and its plan is structured as follows:
• A 100% match on the first 1% of a participant’s deferral from pay.
• A 50% match on the next 5% of deferrals.
• A 4% nonelective employer contribution (creating a “floor” for all employees, including those unable to save enough for the full match).
• Auto enrollment at 6% of pay.
• Auto escalation increase of 1% annually, up to 10% of pay.
Plan design should take into consideration employee demographics and income, along with the amount the employer is willing to contribute as participation rises through auto enrollment and auto escalation.
“Plan sponsors can keep costs down and facilitate more robust savings in auto enrollment plans by getting creative” with the match and other design elements, Lucas advised. “You can jiggle these numbers around and do different things to get to a cost-neutral state without sacrificing the default level” and the higher participant savings rate it can drive.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
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