Featured Stories:
The ROI of a 408(B)(2) Audit
Five tips for Medicare Advantage
2012 Benefits Forecast: 6 top trends
Wellness programs produce stronger, healthier, more productive workers
Addressing the important needs of 401(k) investors
RetireSmart series attracts close to 9,000
Escalating health care costs threaten to erode retirement savings
Foster: Confidence for life
Wu: Enrollment's new normal
Gittelman: Voluntary Benefits- Making lemonade from a sour market
The ROI of a 408(B)(2) Audit
Strategies for fulfilling fiduciary obligations under the new disclosure rule
The Key to An Effective Risk Management Approach
Part two of Roland|Criss' white paper series outlined three differing plan sponsor strategies for fulfilling fiduciary obligations under the new 408(b)(2) fee disclosure rule. The self-governing approach entails no use of outside fiduciary advisors, instead relying solely on in-house leadership to understand, develop and properly execute a 408(b) (2) compliance strategy. By contrast, the outsourced approach completely offloads fiduciary responsibility (and liability) to a qualified, independent third party. Finally, the combined approach offers a compromise- to fulfill most fiduciary responsibilities in-house, but engage an independent fiduciary advisor to review and assess fiduciary practices at least once per year.
Only two of the three fiduciary strategies- the combined approach and the outsourced approach- provided holistic solutions for minimizing risk, ensuring compliance with 408(b)(2), and providing plan sponsors with peace of mind regarding their fiduciary responsibility.
The common link between these two approaches? An annual 408(b)(2) audit.
The 408(b)(2) audit allows for the objective and careful examination of key practices, vendor agreements, and vendor effectiveness for retirement plan sponsors- who often juggle multiple responsibilities, roles and even liabilities at the executive level. The audit enables an independent third party to bear the burden of ensuring that the plan sponsor organization complies with 408(b)(2) and aligns with proper standards for fiduciary practices. In short, the 408(b)(2) audit has become a necessary insurance policy for a plan sponsor's fiduciary liability.
This paper will discuss the benefits of the 408(b)(2) audit, and utilize a real-world case study to illustrate how the 408(b)(2) audit represents a true return on investment for plan sponsors.
Audit Benefits: Worry-Free Fulfillment of 408(b)(2) Requirements
As noted in our previous papers, the new regulation requires three actions of plan sponsors in relation to the monitoring of their vendors' fees: 1) verifying that they have received the appropriate disclosures from vendors, 2) testing that these disclosures are adequate under the new rule, and, 3) determining whether the fees provided within the disclosure are reasonable, or fair, given the vendor services rendered.The key challenge inherent in these requirements is the assumption that plan sponsors will know how to interpret and assess their vendors' reports and fees- a responsibility with which they have no experience and that previously did not fall on their shoulders. The 408(b)(2) audit tackles this issue head-on, providing plan sponsors with a failsafe assessment of their vendors and a go-forward solution for meeting the three requisites of the new regulation. Let's explore the audit benefits in more detail.
Clarifying and Updating Vendor Arrangements
While most plan sponsors are familiar with ensuring the receipt of vendor disclosures, many are unfamiliar with testing the adequacy of these vendor documents under the new rule. The first benefit of the 408(b)(2) audit is the vital identification and assessment of existing vendor arrangements. For some plan sponsors who have maintained a longstanding vendor relationship, it is difficult to locate or interpret their original signed contract. Furthermore, many existing vendor arrangements are not defined in writing making compliance with the rule nearly impossible. The audit process enables plan sponsors to fully understand the terms of their vendor contracts, as well as update and revise them, where needed.
Illuminating What and How Plan Fees Are Paid
Due to the complex nature of vendor fee structures and service models within the retirement plan industry, it is often difficult to discern exactly what fees are being charged for which services, as well as from where those fees are being extracted. A particularly enlightening discovery during the 408(b)(2) audit often is related to learning the ratio of employer-paid fees vs. plan-paid fees. Although many plan sponsors assume their vendor fees are taken exclusively from the company pocket, there are many arrangements that generate vendor payment directly from plan assets- which translates to a reduced amount of investable assets for plan sponsor participants. One of the most valuable takeaways of the 408(b)(2) audit can be understanding and challenging these unbalanced or unfair plan-paid fees.
Analyzing Vendor Value
The most revolutionary offering that is available with the 408(b)(2) audit revolves around garnering a score that assesses a particular vendor's performance. The audit provides plan sponsors with an objective analysis of their vendors' fees based upon a scientific calculation of value (i.e., services delivered vs. fees rendered over the same specific time period). With this calculation, plan sponsors not only are able to view fee trends over a certain amount of time (i.e., 'we have been overpaying in a particular area of our plan for three consecutive years'), but they are equipped with the knowledge of whether their vendor's fees are 'reasonable' as defined by ERISA. This in-depth analysis virtually never has been available to the plan sponsor market prior to 408(b)(2), and is changing the way plan sponsors select and monitor their vendors.
Enhancing Positioning for ERISA Audit
A tangible result of the 408(b)(2) audit is that it proves that a plan sponsor is working to adhere to a high level of fiduciary care and comply with the new regulations. The 408(b) (2) audit report stands as firm testimony to a plan sponsor's intention to adequately fulfill fiduciary responsibilities and update policies as needed when regulatory changes occur. The 408(b)(2) audit places in a distinctively advantageous position those plan sponsors that are required by ERISA to obtain an annual CPA’s financial audit for their plans.
Case Study: Real-World Benefits of a 408(b)(2) Audit
Situation:
A healthcare organization (HCO) was the target of heavy competition by a crowd of retirement plan service providers. The HCO sponsored a 401(k) and pension plan for its employees. The plan fiduciaries were comprised of both medical and business professionals who took to heart their roles as stewards on behalf of their employees.
The HCO's executives listened to the plan vendors promise better benefits for a cheaper cost. While they sensed these claims might have been too good to be true, they wanted to demonstrate an objective process for evaluating current fees and service levels as a first step before engaging in a time-consuming and costly request for proposal process.
Approach:
The HCO engaged an independent fiduciary audit partner in order to implement its 408(b)(2) audit. By doing so, the HCO was able to establish an objective process, rooted and substantiated in ERISA mandates. Furthermore, the process would demonstrate to stakeholders and regulatory agencies the executives' adherence to a standard of excellence.
The independent fiduciary audit partner worked primarily with the CFO, who served as the liaison with plans' vendor supply chain. With the use of its data collection system, provider review criteria, and fee benchmarking resource tool, the fiduciary audit partner efficiently verified, tested and opined on the reasonableness of the plans' service providers' fees.
Result
The 408(b)(2) audit resulted in powerful outcomes and directives for the HCOs executives, including:
- Creating a common language for the plans' fiduciaries and an awareness of the murky and complex fiduciary burdens,
- Clarifying the service providers' roles and accountabilities.
- Simplifying the fiduciaries' understanding of fee types, categories, and direct and indirect revenue received by providers,
- Upgrading and enhancing current service agreements and establishing effective performance metrics.
- Generating a 30% reduction in plan expenses by eliminating duplicitous functions and establishing more precise deliverables.
How Do We Measure the ROI of Confident Peace of Mind?
Amidst all of the hype and discussion that has surrounded the establishment of the 408(b)(2) rule, one truth remains: the new fee disclosure rule requires just as much, if not more, effort and diligence from plan sponsors as from their vendors. Additionally, plan sponsors typically are not trained in understanding the intricacies of the vendor world, including investment jargon, complex fee arrangements and conflicts of interest. Executive teams are trained to excel in their leadership role, and this often requires deft delegation and collaboration across all levels of the organization. The fiduciary role can be intimidating, with its far-reaching implications and inherent liabilities. However, there are trusted, independent partners that can help plan sponsors to maintain their focus on the big picture, while ethically and transparently tending to the details that are so critical to fulfilling fiduciary duty. The 408(b)(2) audit may be the vehicle, at last, for a much-needed introduction between the droves of well-intentioned plan sponsors and their trusted fiduciary solution.
Five Tips for Making the Most
of Your Medicare Advantage Plan in 2012
UnitedHealthcare offers tips and reminders to help beneficiaries save money
and improve their health by maximizing their Medicare Advantage plan benefits
MINNETONKA, Minn. - As Medicare beneficiaries set out to achieve their New Year's resolutions this month, they should not leave their health care coverage off the list. For the more than 12 million beneficiaries enrolled in a Medicare Advantage plan, resolving to make the most of their coverage could result in improved health and more money in their pockets in 2012.
"The start of a new year is the perfect time to take stock of the coverage and benefits available to you through your Medicare Advantage plan," said Dr. Rhonda Randall, chief medical officer of UnitedHealthcare Medicare & Retirement. "Many Medicare beneficiaries are pleasantly surprised when they discover all the ways their plan can help them stay healthy and improve their quality of life."
Medicare Advantage plans are an alternative to Original Medicare. Offered by private insurers like UnitedHealthcare, the plans combine Medicare Part A, hospitalization coverage, and Part B, coverage for routine doctor visits, into one plan that often includes additional benefits and Part D prescription drug coverage.
With more than 9 million members enrolled in its Medicare health and prescription drug plans, UnitedHealthcare has been serving the Medicare market for three decades. Its Medicare & Retirement business is the nation’s largest dedicated to meeting the health and well-being needs of seniors and other beneficiaries.
According to Randall, the following tips can help Medicare Advantage enrollees maximize their coverage in 2012
- Leverage the plan's additional benefits to stay healthy. Medicare Advantage plans are designed to do more than just help beneficiaries when they are sick. The plans cover all of the preventive services covered by Original Medicare, such as certain cancer screenings and an annual wellness check-up, usually at no additional out-of-pocket cost to the member. These types of services are key to catching health problems early, before they have become serious.
In addition to all of the services covered under Original Medicare, many Medicare Advantage plans provide additional benefits that can help beneficiaries maintain or enhance their health. Wellness programs, gym memberships, disease management programs and 24/7 access to registered nurses are examples of the benefits and services available with many Medicare Advantage plans.
Beneficiaries should take some time to learn about the extra programs and services their plan offers and determine which ones fit into their overall health and wellness plan. Considering the savings and health benefits that could be realized, this is time well spent.
- Take advantage of cost-savings on prescription drugs. Beneficiaries enrolled in a Medicare Advantage plan that includes drug coverage should check their plan details to see if they could save money on their prescriptions.
Mail-order pharmacy benefits can be a great way to save not only money but also a trip to the pharmacy. Some mail-order pharmacy services offer the convenience of ordering a three-month supply of drugs that are delivered to the member's home for a lower cost than purchasing the same quantity of drugs at a retail location. Some plans have dropped the co-pay to $0 for select drugs when purchased from the plan’s preferred mail-order pharmacy.
Beneficiaries who prefer to visit a pharmacy to get their drugs should check to see if their plan offers any programs to help members save additional money on their prescriptions. For example, UnitedHealthcare's Pharmacy Saver program reduces members' out-of-pocket costs on hundreds of generic prescription medications when purchased at pharmacies participating in the program.
Switching to generic or lower-tier drugs is another step that could save beneficiaries a significant amount of money. The majority of Medicare Advantage plans that include a prescription drug benefit cover most generic drugs for very low or no additional cost to the member. Prescription drugs are typically sorted into several tiers on the plan's formulary, or approved drug list, with drugs on lower tiers generally costing less than drugs on higher tiers. Beneficiaries should review their plan's formulary and check with their doctor and plan to determine if a drug on a lower tier might be suitable to treat their condition.
- Understand the plan's care provider network, and stay in network as much as possible. Most Medicare Advantage plans work with a network of doctors and pharmacies to coordinate the care that their members receive. In addition, private insurers negotiate with doctors and pharmacies to offer special pricing, which translates into lower costs for members. Whenever possible, Medicare beneficiaries should visit in-network doctors and pick up their drugs from in-network pharmacies to help save money.
Some Medicare Advantage plans allow members to see out-of-network doctors, but the price of the services provided is usually higher. And some plans do not cover services provided by out-of-network doctors, so it is important for beneficiaries to understand their plan’s policies before seeking care.
- Look for extra plan discounts on every-day health care items and services. Medicare Advantage enrollees can rack up valuable savings by taking advantage of discounts on things they already use or need, such as vitamins, hearing aids and alternative medicine services such as acupuncture. For example, in most regions of the country, members enrolled in UnitedHealthcare's Medicare Advantage plans can access high-tech, custom-programmed hearing devices either for a low copayment or at a discounted price. Because Original Medicare does not cover the substantial cost of hearing devices, this feature could potentially save UnitedHealthcare members thousands of dollars.
Beneficiaries should review their plan materials to familiarize themselves with the discounts and other offers available to them and then make sure they remember those discounts every time they purchase the item or service.
- Plan yearly health care expenses with the out-of-pocket maximum in mind. Unlike Original Medicare, Medicare Advantage plans are required to cap their members' annual out-of-pocket expenses. In 2012, the maximum amount a Medicare Advantage enrollee can be asked to pay out of pocket for in-network medical services is $6,700. Some plans set their out-of-pocket maximum at lower levels. Prescription drug costs, such as co-pays, are not included when calculating a member's progress toward the out-of-pocket maximum.
Once a beneficiary has reached the out-of-pocket maximum set by his or her plan, all additional costs for Medicare-covered services for the remainder of the year are 100-percent covered. This cap on health care costs can give beneficiaries peace of mind. In the event of an unexpected illness or hospitalization, knowing the expenses are limited by the plan's out-of-pocket maximum can be comforting. The out-of-pocket limit can also be a helpful number to keep in mind for beneficiaries who are planning to undergo major medical procedures in the coming year.
By taking a proactive approach to their health care coverage, beneficiaries can lower their costs and enjoy enhanced health and well-being in 2012. For ongoing updates, tips and reminders about Medicare, beneficiaries can visit MedicareMadeClear.com.
More information is available at www.Medicare.gov and www.UHCMedicareSolutions.com.
2012 Forecast: Six Top Trends in Workplace Benefits
Growth in voluntary benefits, wellness programs leads list of what's coming
COLUMBIA, S.C. - After several years of economic woes and health care reform wrangling, the only certainty in the future of workplace benefits may be continued uncertainty. But insurance brokers who want to be prepared for 2012 should pay attention to several emerging trends. Here are the top six predictions for the coming year, according to experts at Colonial Life & Accident Insurance Company, one of the nation's leading employee benefit providers:
Products: Critical illness insurance will continue to attract new customers.
With the costs of treating cancer, heart attacks and strokes far exceeding most employees' major medical coverage, critical illness insurance can provide vital out-of-pocket protection to help with both the medical and nonmedical costs associated with treating and recovering from these diseases. Updated versions of this relatively new product include benefits for multiple occurrences of a critical illness, adding to their value. "One way to think of critical illness insurance is as 'living life insurance,'" says Randy Finn, assistant vice president of supplemental health products at Colonial Life, where critical illness sales increased 24 percent from 2009 to 2010. "If you get a serious illness such as cancer and die, life insurance helps with that. But what if you survive? You're likely to have years of financially crippling bills to pay."
Sales: Voluntary insurance sales will continue to grow
Increasing workforce diversity and the need to offer choices to employees with widely varying needs will drive an uptick in sales. Group products will continue to grow as a percentage of voluntary sales, while life insurance sales continue to fall. "There's a big need for better education of workers about the need to protect their most valuable assets with life and disability coverage," points out Jeff Koll, Colonial Life's assistant vice president of life and disability products.
Distribution: Brokers will be increasingly involved in the voluntary benefits market as they continue to look for different revenue streams.
Reduced major medical commissions, uncertainty in the market because of health care reform changes and a continued slow economy are forcing brokers to look for new revenue sources. Voluntary benefits will continue to grow as a simple solution. "Brokers are finding they can get in this market with little training and no overhead by partnering with an experienced voluntary benefits carrier," says Jay Hutchins, Colonial Life's vice president of broker marketing and sales. The majority of employers, 59 percent, already work with brokers on their employee benefits plans.
In a related trend, more brokers will become generalists in an attempt to offer their clients greater value and stave off increasing competition.
Services: Wellness programs will become more prevalent as a way for employers to control health care costs and increase productivity and retention.
With no let-up in sight for rising health care costs, employers are increasingly seeing the value of workplace wellness programs as a way to control premium increases and claims costs. Ranging from health screening tools to online nurse services, wellness-related offerings will become a bigger part of benefits providers' value-added services.
However, the key to seeing a true bottom-line benefit may be as much about employee awareness and engagement as it is about the actual service. "Good communication about wellness programs is essential for them to be effective," says Steve Bygott, Colonial Life's assistant vice president of marketing analysis and programs. "Without a focused effort to ensure employees understand the program and its value to them, participation tends to be low."
Technology: Employees will have more options for decision-support tools using online technology.
As employers continue to push benefits decision-making responsibility to their employees, look for a proliferation of websites and interactive tools to help them understand different types of coverage and which ones meet their unique needs. An example is Colonial Life's Benefits Learning Center website (www.benefitslearningcenter.com), launched last May featuring Youville, an entertaining interactive tool for workers to individualize their benefits education and explore their unique benefits needs.
Research shows most employees don’t actively search for information about their benefits, don't want frequent communication from their employers about them, and don't dedicate a significant amount of time to learning more about them. Online decision-support tools such as Youville offer employees important benefits information with minimal effort, says Dana Bagwell, Colonial Life's director of benefits communication and education. "These tools give employees easy access to the information they need to make informed benefits decisions, all in one place."
Economy: Government sector employers will focus on cost containment measures for their benefits plans.
Government employers are strongly feeling the effects of several years of reduced tax revenues, and now find themselves in the unfamiliar position of being forced to reduce benefits or raise their employees' share of the costs. A recent survey of public sector human resources managers showed 80 percent of them are looking at ways to reduce the cost of their employee benefits plans, and 58 percent said controlling costs is their top priority for their benefits programs.
"The good news is there's a huge opportunity for government employers to control costs by changing their benefits plan design," says Pat McCullough, Colonial Life's public sector practice leader. "Government employers have been slower than other industry segments to shift away from the more comprehensive, paternalistic benefits models of the past, but there are solutions to help them offer strong packages and still save money."
Colonial Life & Accident Insurance Company is a market leader in providing insurance benefits for employees and their families through the workplace, along with individual benefits education, advanced yet simple-to-use enrollment technology and quality personal service. Colonial Life offers disability, life and supplemental accident and health insurance policies in 49 states and the District of Columbia. Similar policies, if approved, are underwritten in New York by a Colonial Life affiliate, The Paul Revere Life Insurance Company, Worcester, Mass. Colonial Life is based in Columbia, S.C., and is a subsidiary of Unum Group, one of the world's leading providers of employee benefits. For more information, call Colonial Life at (803) 798-7000 or visit www.coloniallife.com.
Wellness Programs Produce Stronger, Healthier, More Productive Workers
Americans increased focus on personal well-being improves workplace performance
DES MOINES, Iowa - Americans work harder, are more productive and miss fewer days of work as a result of wellness benefit programs, according to the latest Principal Financial Well-Being Index. Forty-one percent of workers agree that having a wellness program encourages them to work harder and perform better at work.
"Americans' increasing sense of personal responsibility for their physical well-being leads to workers showing up to work and staying productive while there"
The index, which surveys American workers at growing businesses with 10-1,000 workers1, is released by the Principal Financial Group and conducted by Harris Interactive. These findings focusing specifically on wellness attitudes and behaviors among American workers were taken from the fourth quarter 2011 Index.
According to the research, 52 percent of workers (up from 37 percent last year) said they have more energy to be more productive at work by participating in a wellness program. Another 35 percent (up from 28 percent a year ago) said that they have missed fewer days of work by participating in a wellness program.
"Americans' increasing sense of personal responsibility for their physical well-being leads to workers showing up to work and staying productive while there," said Lee Dukes, president of Principal Wellness Company, a subsidiary of the Principal Financial Group. "Employers who embrace a culture of wellness in their workplaces can benefit in return with not only costs-savings, but healthier and more engaged employees."
Forty-five percent of workers chose better overall physical health as the top benefit to participating in a wellness program. Other top mentions included receiving a meaningful incentive from their employer for participation (30 percent) and reduced personal healthcare costs, greater chance of living a longer, healthier life and reduced stress (29 percent each). Fifty-five percent of workers rated wellness activities offered by an employer as very successful or somewhat successful in improving health and reducing health risks.
Worker Desires and Employer Offerings Don't Match Up
When it comes to wellness benefits workers desire and wellness benefits actually offered by employers, the two groups diverge. The top four wellness benefits workers would most like to see their employer offer are fitness center discounts (25 percent), on-site preventive screenings (22 percent), access to wellness experts such as nutritionists (21 percent) and onsite fitness facilities (19 percent). However, the top four wellness benefits offered by employers are online wellness information (19 percent), educational tools or resources (18 percent), fitness center discounts (17 percent) and printed wellness information (17 percent). Interestingly, access to wellness experts was only available to 11 percent of those surveyed.
"As Americans become more involved in their own health, they want new ways to improve their health while at work, as evidenced by their increasing demand for health coaches and preventive screenings," said Dukes.
For more news and insights from The Principal, connect with us on Twitter.
Methodology
This Principal Financial Well-Being Index survey was conducted online within the United States by Harris Interactive on behalf of the Principal Financial Group between October 20 and October 31, 2011 among 1,121 employees and 533 retirees. Propensity score weighting was also used to adjust for respondents' propensity to be online.
This is one in a series of quarterly studies to identify and track changes in the workplace of small and mid-sized (growing) businesses. The first Principal Financial Well-Being Index survey was conducted in the United States in 2000.
About the Principal Financial Group
The Principal Financial Group (The Principal) is a global investment management leader including retirement services, insurance solutions and asset management. The Principal offers businesses, individuals and institutional clients a wide range of financial products and services, including retirement, asset management and insurance through its diverse family of financial services companies. Founded in 1879 and a member of the FORTUNE 500, the Principal Financial Group has $320.8 billion in assets under management and serves some 17.8 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
About Harris Interactive
Harris Interactive is one of the world's leading custom market research firms, leveraging research, technology and business acumen to transform relevant insight into actionable foresight. Known widely for the Harris Poll and for pioneering innovative research methodologies, Harris offers expertise in a wide range of industries, including health care, technology, public affairs, energy, telecommunications, financial services, insurance, media, retail, restaurant and consumer package goods. Serving clients in more than 215 countries and territories through its North American, European and Asian offices and a network of independent market research firms, Harris specializes in delivering research solutions that help clients stay ahead of what's next. For more information, visit www.harrisinteractive.com.
Addressing the Important Needs of 401(k) Investors
In-plan solution features automatic, diversified investment selection
and a stream of lifetime income guaranteed by multiple insurers
ING's U.S. Retirement division announced today a new asset allocation program to help 401(k) plan participants convert their savings over time into a stream of guaranteed income that lasts throughout retirement. The ING Lifetime Income Protection Program represents the latest solution in the market to help address the challenges many people will face after they leave the workforce.
"There is a clear need for Americans to manage risk as they plan and save for their future. Not only must they build up a sufficient nest egg during their working years, they must also have a source of steady income at retirement that is well protected and lasts throughout their lifetime," said Rick Mason, president of Corporate Markets for ING U.S. Retirement. "ING is committed to advancing the retirement income conversation and we believe the industry has an important and collective duty to provide innovative and meaningful retirement solutions. We are pleased to announce the launch of ING's Lifetime Income Protection Program with retirement leaders, AllianceBernstein, AXA Equitable Life Insurance Company and Nationwide Financial."
The ING Lifetime Income Protection Program is initially being offered to customers in ING's corporate defined contribution plans. It provides participants with a series of target date asset allocation models, or "portfolios," that help build critical retirement savings followed by an income benefit for life, guaranteed by multiple leading insurers. ING worked closely with AllianceBernstein to design a program that leverages the expertise of that firm's multi-insurer platform, while incorporating both guaranteed and non-guaranteed components into one consolidated program.
The non-guaranteed component consists of multi-manager, target date collective investment trust funds. These funds offer the potential for broad diversification and seek to leverage the benefits of both active and passive investment strategies from several well-known fund companies. ING's asset manager, ING Investment Management, oversees these collective trusts. AllianceBernstein also serves as an investment manager.
The guaranteed component, which is triggered at a certain time as a participant gets closer to retirement, is provided through multiple insurance contracts, each issued by one of three highly regarded insurance companies- ING's own ING Life Insurance and Annuity Company, as well as AXA Equitable Life Insurance Company and Nationwide Financial. Investors benefit by having ING provide a single, consolidated program with the multiple insurance companies splitting the responsibility under the contracts. This diversifies risk and helps participants receive competitive payouts.
Other important benefits and features of the ING Lifetime Income Protection Program include the following:
- Contracts that offer the potential for income growth from market gains as well as income protection against market losses through a minimum guaranteed withdrawal benefit (MGWB). This feature provides participants with a stream of guaranteed retirement income for life.
- Flexibility for participants to withdraw their assets or transfer to other investment options at their convenience, giving them full control while in the program.
- A cost structure designed to benefit participants by allowing them to pay for the MGWB guarantee only when assets are allocated to the contracts available through the portfolio.
- A platform that adheres to the recommended recordkeeping standards established in support of plan sponsor portability by the Society of Professional Asset-Managers and Record Keepers (SPARK) Institute, a key retirement industry association and resource.
ING's Lifetime Income Protection Program simplifies an important part of the retirement income experience for investors by utilizing features that take the guesswork out of retirement planning while minimizing enrollment efforts. Plan participants easily begin the process by providing their date of birth and their savings amount. The rest is handled through the 'do-it-for-me' aspects of target date investing coupled with a timely and gradual glide path progression toward purchasing a guaranteed benefit over time. All critical, technical elements are taken care of through the program, including risk diversification, long-term asset allocation strategies that employ income-averaging concepts and income in retirement that offers growth potential from market gains as well as income protection against market losses.
"With over 5 million retirement plan customers, ING has the ability to conduct timely and relevant research. We know that participants are looking for ways to make it easier to build a successful retirement income plan," said Mason. "ING's Lifetime Income Protection Program is a way to do just that, providing investors with a simplified process and at the same time addressing the factors we believe matter most to plan sponsors and the financial professionals who serve them."
ING is a leader in helping Americans achieve their retirement objectives. The launch of the ING Lifetime Income Protection Program underscores ING's continued commitment to invest in, innovate and implement meaningful plan strategies that are designed to help drive positive retirement outcomes.
1. All guarantees under the contracts are subject to certain conditions and limitations and to the claims-paying ability of the issuing insurer.
2. Withdrawing amounts allocated through the program may reduce or eliminate the guaranteed income payout associated with amounts allocated to the contracts.
3. The only expenses under the program are the fees and charges associated with the funds and the contracts.
A portfolio is not an investment separate from its allocation between the funds and contracts, is not an investment company and has not been registered with the Securities and Exchange Commission under the Investment Company Act of 1940 or the Securities Act of 1933.
The contracts in which the ING Lifetime Income Protection Program invest are currently issued by AXA EQUITABLE LIFE INSURANCE COMPANY, New York, NY, policy form # AE11-GRIF (may vary by state), ING LIFE INSURANCE AND ANNUITY COMPANY, Windsor, CT, policy form # G-GRIF-11 (may vary by state) and NATIONWIDE LIFE INSURANCE COMPANY, Columbus, OH, policy form # VAC-0125AO (may vary by state). The individual account value under each contract will fluctuate and may be worth more or less than the original amount allocated; however, any decreases in value due to market performance will not affect the MGWB guarantees of future retirement income.
MassMutual's RetireSmart Seminar Series
Reaches Nearly 9,000 Participants in 2011
Helping plan participants break through barriers and make smarter choices
SPRINGFIELD, Mass., MassMutual's Retirement Services Division is focused on helping its plan participants break through barriers and make smarter decisions about their finances. With a total of eight online seminars presented in 2011 as part of MassMutual's RetireSmart educational program, the division successfully reached nearly 9,000 participants throughout the series.
MassMutual assembled a number of diverse industry experts to lead the presentations. Each online seminar is free of charge and includes a 30-minute presentation followed by a 30-minute Q&A session with the speaker. Designed to be both informative and convenient, the seminars give participants an opportunity to directly interact with MassMutual's panel of experts:
- Understand What's Driving the Economy
Presented on February 23, 2011 by Dr. Jerry Webman, Ph.D., CFA, and chief economist for OppenheimerFunds, Inc.
- Retirement Goal: It's More Than a Number
Presented on March 30, 2011 by Farnoosh Torabi, independent Generation Y money coach, best-selling author and personal finance journalist.
- Tax Strategies for Retirement
Presented on May 4, 2011 by William (Greg) Nix, analyst, Employee Plans Customer Education and Outreach for the U.S. Internal Revenue Service.
- Good Credit May Lead to More Savings
Presented on June 22, 2011 by Farnoosh Torabi.
- Measuring the Success of Your Retirement Strategy
Presented on July 20, 2011 by Yvonne Lensky, training consultant, and Paul Webb, director of product development, both of MassMutual's Retirement Services Division.
- Managing & Maximizing Your 401(k) Today…And Tomorrow
Presented on September 21, 2011 by Farnoosh Torabi.
- Ready or Not, Retirement is Coming
Presented on October 19, 2011 by Vera Gibbons, finance journalist and national TV correspondent.
- Finding Ways to Pay for College
Presented on November 9, 2011 by Farnoosh Torabi.
MassMutual saw record attendance for both the "Measuring the Success of Your Retirement Strategy" and "Managing & Maximizing Your 401(k) Today…And Tomorrow" seminars, welcoming a total of 1,681 and 1,792 participants, respectively. Interestingly, attendance for female participants (55%) was consistently higher than their male counterparts (45%), on average over the entire series.
The "Measuring the Success of Your Retirement Strategy" seminar featured a demonstration of MassMutual's RetireSmart Ready online tool, an online analysis engine exclusive to MassMutual Retirement Services designed to provide participants with an instant assessment of their preparedness for retirement and prompt action to help improve their outlook based on personal preferences.
During the "Managing & Maximizing Your 401(k) Today…And Tomorrow" seminar, Farnoosh Torabi explained how investing in a 401(k) plan can help Americans better prepare for retirement. She covered the advantages of investing in a 401(k) plan and provided information on catch-up provisions for those participants over 50 years of age.
"MassMutual Retirement Services is fully committed to providing its plan sponsors and participants with the tools and resources they need to plan for a successful future," says E. Heather Smiley, senior vice president and chief marketing officer for MassMutual's Retirement Services Division. "The RetireSmart interactive participant education series is designed to do just that, providing information on topics most important to our clients. Our collaboration with various experts throughout the financial services industry is a winning combination due to their diverse experiences and shared passion for helping individuals achieve their financial goals," adds Smiley.
To ensure the RetireSmart program continues to provide topics that are most valuable to participants, each post-event survey asks participants to name additional topics of interest. The most frequently requested topics in 2011 included estate planning, financial strategies for couples, educating children on finances, target date and risk-based investments, and budgeting. These topics and others will be addressed in MassMutual's 2012 RetireSmart line-up, to be announced shortly.
Visit RetireSmart On-Demand here for available webcasts. New seminars are added frequently so actual replays may vary.
About MassMutual
MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) [of which Retirement Services is a division] and its affiliated companies and sales representatives. MassMutual is headquartered in Springfield, Massachusetts and its major affiliates include: Babson Capital Management LLC; Baring Asset Management Limited; Cornerstone Real Estate Advisers LLC; The First Mercantile Trust Company; MassMutual International LLC; MML Investors Services, LLC, Member FINRA and SIPC; OppenheimerFunds, Inc.; and The MassMutual Trust Company, FSB.
MassMutual's Retirement Services Division has been serving retirement plans for 65 years. It offers a full range of products and services for corporate, union, nonprofit and governmental employers' defined benefit, defined contribution and nonqualified deferred compensation plans. It serves approximately 1.3 million participants.
For more information, visit www.massmutual.com.
Escalating Health Care Costs
Threaten to Erode Americans Retirement Savings
Nearly Two-Thirds of Baby Boomers are Not Confident
They Will be Able to Cover Medical Expenses in Retirement
WASHINGTON, D.C. - The Insured Retirement Institute (IRI) has released its report, Health Care Expenses and Retirement Income: How Escalating Costs Impact Retirement Savings. This exclusive report examines the impact of rising medical expenses on Baby Boomers' retirement income planning and strategies that may alleviate some of the financial burden. The report found that a healthy 65-year-old male can expect a total cost of health care expenses, including premiums, for the rest of his lifetime to top $350,000, and a 65-year-old woman can expect at least $417,000 in health care expenses, a 13% increase compared to her male counterpart. It also found that the average person on Medicare will have out-of-pocket medical expenses totaling more than $4,300 per year.
Baby Boomers do not believe they are financially prepared to cover future medical expenses. IRI research has found that 63 percent of Baby Boomers lack confidence that they will have enough money for medical expenses they incur during retirement. This concern is especially strong among younger Boomers ages 50 to 54 with 72 percent stating they are lacking confidence that they will have enough money to take care of medical expenses during retirement.
"Health care costs are one of the biggest concerns for Boomers as they enter retirement and is also one of the largest threats to Americans' overall retirement income security," said IRI President and CEO Cathy Weatherford. "This report underscores the importance for Americans to properly plan for retirement and to consult with an advisor to ensure they will have enough money to cover health care costs and other necessary expenses in retirement. It also demonstrates the unique role insured retirement strategies can play in a holistic retirement plan and can help alleviate some of the financial burdens of covering health care costs."
The report provides ways investors can plan for increased medical costs and Medicare premiums when developing their retirement financial plan. Annuities can help cushion health care costs and can reduce the investment needed to cover future health care costs. An annuity with a guaranteed minimum withdrawal benefit (GMWB) can provide a base level of guaranteed lifetime income and supplement income from Social Security.
The report also found that:
- The 2012 Social Security cost-of-living adjustment (COLA) of 3.6% represents an increase, on average, of $42 per month, or approximately $500 for the year.
- Per capita health care expenses increased by 5.75 percent in the twelve-month period ending September 2011.
- For 2012, Medicare Part B premiums will account for 8.2% of the average Social Security benefit, up from 5.1% in 2000.
- While the average Social Security check is 31 percent higher than it was in 2001, premiums for Medicare Part B have doubled.
- Although there is no decline in the COLA net of Part B premiums (net COLA) for 2012, Part B premiums have negatively impacted the COLA for 12 of the past 20 years.
- While 63% of all Boomers lack full confidence in their ability to cover medical expenses in retirement, the concern is most pronounced among younger Boomers with 72 percent of Boomers ages 50-54 concerned about their ability to cover medical costs in retirement, and middle-income Boomers (70 percent) compared to 52 percent of Boomers making more than $75,000 per year. However, concern is consistent among men and women (63 percent) and marital status (63 percent among both married and single Boomers).
- A 55-year-old man can reduce the total investment needed to fund future health expenses by more than 70 percent by adding an annuity.
The full report can be found here.
About the Insured Retirement Institute
The Insured Retirement Institute (IRI) is a not-for-profit organization that for twenty years has been a mainstay of service, commitment and collaboration within the insured retirement industry. Today, IRI is considered to be the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI proudly leads a national consumer education coalition of nearly twenty organizations and is the only association that represents the entire supply chain of insured retirement strategies: our members are the major insurers, asset managers, broker dealers and more than 75,000 financial professionals. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI's mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policy makers on critical issues affecting insured retirement strategies and the consumers that rely on their guarantees. Visit www.IRIonline.org today to experience the vast resources of the Insured Retirement Institute for yourself.
Over Here
Retirement Cutbacks Lead Financial Concerns Of Military Families
First Command Financial Behaviors Index reveals top 10 financial worries
of active-duty service members and their families
FORT WORTH, Texas- A proposed overhaul of the military retirement system has emerged as the No. 1 financial worry of military families, easily surpassing the economy and related issues in a ranking of top money concerns.
Recent survey findings from the First Command Financial Behaviors Index reveal that 71 percent of middle-class military families (senior NCOs and commissioned officers in pay grades E-6 and above with household incomes of at least $50,000) identify government cuts to military retirement benefits as one of the financial issues that concerns them the most. The economy came in second at 54 percent, followed closely by the cost of gas at 51 percent.
Notably, the ability to retire comfortably was cited by half of survey respondents, making retirement issues two of the top four financial concerns in military families. The Index reveals that just 35 percent of survey respondents say they are extremely or very confident in their ability to retire comfortably. And when asked about their ability to retire comfortably 'given government cuts to military retirement benefits,' uncertainty intensified with just 19 percent saying they are extremely or very confident.
"These findings are a dramatic indicator of the growing level of concern in active-duty families regarding their long-term financial futures," said Scott Spiker, CEO of First Command Financial Services, Inc. "While the continuing economic turmoil weighs heavily on many middle-class families, the proposed overhaul of the military retirement system has become an even more critical financial concern of our men and women in uniform."
The top 10 financial worries cited by survey respondents are:
- Government cuts to military retirement benefits (71 percent )
- State of the economy (54 percent)
- Cost of gas (51 percent)
- Ability to retire comfortably (50 percent)
- Cost of everyday goods (40 percent)
- Value of real estate (38 percent)
- Personal debt (37 percent)
- Ability to send kids to college (31 percent)
- Stock market (30 percent)
- Unemployment/job security and cost of health insurance (tie at 21 percent each)
Military families are responding by taking action. The index reveals that 37 percent of families have changed their financial behaviors as a result of the proposed military retirement cutbacks. These consumers are saving more (59 percent) and paying more on debt (51 percent). And of the military families who have not changed their financial behaviors, they are also planning to save more (31 percent) and pay down debt (26 percent).
"As the federal government continues to propose changes to military retirement benefits, military families will continue to respond by changing their financial behaviors for the better," Spiker said. "We expect saving more and paying down debt will be among the key money strategies on display in active-duty households in 2012."
About the First Command Financial Behaviors Index
Compiled by Sentient Decision Science, Inc., the First Command Financial Behaviors Index® assesses trends among the American public's financial behaviors, attitudes and intentions through a monthly survey of approximately 530 U.S. consumers aged 25 to 70 with annual household incomes of at least $50,000. Results are reported quarterly. The margin of error is +/- 4.3 percent with a 95 percent level of confidence. www.firstcommand.com/research
About Sentient Decision Science, Inc.
Sentient Decision Science was commissioned by First Command to compile the Financial Behaviors Index. SDS is a behavioral science and consumer psychology consulting firm with special vertical expertise within the financial services industry. SDS specializes in advanced research methods and statistical analysis of behavioral and attitudinal data.
About First Command
First Command Financial Services and its subsidiaries, including First Command Bank and First Command Financial Planning, assist American families in their efforts to build wealth, reduce debt and pursue their lifetime financial goals and dream, focusing on consumer behavior as the first and most powerful determinant of results. Through knowledgeable advice and coaching of the financial behaviors conducive to success, First Command Financial Advisors have built trustworthy, lasting relationships with hundreds of thousands of client families since 1958.
Confidence for Life
Helping Americans create guaranteed income is a big step to rebuilding confidence in retirement
By E. Thomas Foster Jr.
Mr. Foster is The Hartford's national spokesperson for qualified retirement plans. Foster works directly with broker/dealer firms and advisers to help them build their qualified retirement plan business and educate them about industry issues. He can be reached at tom.foster@thehartford.com
Americans have always been a confident bunch. Through economic depression, world wars, constitutional crises and other calamities, we have always persevered and looked boldly to the future.
The last decade has taken its toll, however. Two bear markets, a humbling recession and stubborn joblessness have punched us right in the gut, taking the wind out of our confidence about the future, especially as it relates to retirement.
A 2010 study by The Hartford showed a steady decline in confidence among those 45 and older about having enough money in retirement. The number of people who said they were at least 'somewhat' to 'completely' confident that all of their sources of retirement income would be enough to live comfortably in retirement dropped to 57 percent in 2010 from 72 percent in 2006. Sources of retirement income included an employer-provided pension, Social Security and personal savings.
New Solutions Are Available
The insurance and financial services industries have taken note. They have introduced a flurry of new retirement income products designed for 401(k) and other defined contribution retirement plans during the past few years. These products allow plan participants to take a portion of their retirement savings and create a stream of guaranteed income for themselves when they retire.
Most of these products are embedded as an investment option within a 401(k) and are connected to variable annuities. In many cases, the income products are tied to a guaranteed minimum withdrawal benefit (GMWB) as part of a variable annuity and are therefore subject to market fluctuation. Others are offered as part of the glide path associated with a target date fund. In a few cases, the investment option is a fixed deferred annuity that guarantees income for life.
These new products are entering the marketplace as employers are beginning to ask for income solutions as part of their retirement plan offerings. Being able to offer an income solution as part of any 401(k) plan proposal can help differentiate advisors in the marketplace. But it's not enough just to offer any income solution … it must be the right income solution if it is to gain traction with plan participants.
That means the challenge for advisors is to sort through the myriad of solutions and determine what makes sense for each employer or plan sponsor and their employees. Advisors can add significant value by helping plan sponsors build a retirement plan that will in the long run be effective and, ultimately, help set them apart when it comes to attracting and retaining the talent they need. After all, a 2011 study by The Hartford found that 60 percent of small businesses with fewer than 100 employees said finding qualified talent remains a challenge.
The best solutions have a set of common criteria that together provide a tailored, flexible income solution for plan participants without taxing plan sponsors.
The Employer View
So where do you begin? Start by surveying the field from the employer's perspective. Employers may want to offer a defined benefit-like benefit without the administrative costs, funding volatility and fiduciary liability typically associated with traditional pension plans.
Many employers genuinely appreciate being able to offer employees the ability to create a pension-like income. But employers don't necessarily appreciate the significant pension-like administrative costs typically associated with a defined benefit plan. So any income solution should avoid the administrative burdens shouldered by most employers.
Another important point to consider: one of the reasons that employers have moved away from offering defined benefit pensions is the potential funding costs or risks associated with them. The last bear market left thousands of corporations with underfunded pension obligations, a potential drag on earnings. So potential income solutions should shift any funding risk away from the employer to a third party, in most instances, to an insurer that has long expertise in managing such risks.
Overall, employers have thus far been slow to embrace income solutions, in part because of concerns about fiduciary issues. The U.S. General Accountability Office (GAO) weighed in during 2011, encouraging the adoption of annuities in defined contribution plans to help Americans create guaranteed, lifetime income. But many employers are sitting on the sidelines, awaiting a potential safe harbor from the Department of Labor (DOL).
Whether the concept of income solutions will ever drop anchor in a DOL safe harbor is anyone's guess. But whether or not that day ever comes, it is possible to find answers to fiduciary questions. Look for a lifetime income solution that is covered by an independent fiduciary service the same as other investment options within a defined contribution plan.
The Participant View
Once those hurdles are cleared, it's time to consider the various needs of plan participants. The biggest need for most people in retirement is to have income that is guaranteed to last as long as they do. Retirees need to know that they will have enough income to cover their basic living expenses throughout retirement. Not 10 years, not 20 years but for life. This is extremely important for participants who do not have any other source of guaranteed income other than perhaps Social Security.
Despite the obvious need for guaranteed retirement income, acceptance of income solutions by retirement plan participants has been somewhat slow. The reasons why may be connected to the relative complexity of the solutions themselves, especially when it comes to GMWBs and other more complicated designs. So solutions that are simple to understand and are backed by easy-to-use income planning tools are imperative.
The easier the income concept is to communicate, the more likely it is to be understood by plan participants and, ultimately, to be selected as an investment option.
Make It Easy
The best solutions also make it easy for plan participants to buy income, preferably through payroll deduction. Participants who regularly contribute 401(k) dollars to future income in effect employ a dollar-cost-averaging strategy, buying more income when interest rates are higher and less income when interest rates are lower. Also, the younger the participant, the cheaper the income is to buy because of the ability to compound interest earnings over a longer time frame. Many participants will also want to make exchanges from other investment options or even rollovers from other retirement plans.
But before a retirement plan participant can make an educated decision about whether or not to purchase income or how much, he or she needs to undertake some basic retirement planning. They need tools that help them estimate what their basic expenses will be in retirement for things such as food, housing, insurance, medical costs and others. Once they have an understanding of what their expenses will run, they need to determine what sources of income they have to cover those expenses. Knowing what Social Security may pay and whether or not they can expect income from a pension or pensions is critical.
After performing their 'due diligence' for their retirement budget, plan participants can then determine if they have an income 'gap' or shortfall. And that's where an income solution can make all the difference.
Participants can determine how much of their retirement savings they need to direct into income to live comfortably in retirement. The safest strategy is to build up enough guaranteed income to cover basic living expenses.
The retirement planning exercise has other benefits as well. Frankly, many people may for the first time appreciate that they need to save more and tighten their belts while they're working to make sure they have a belt to tighten when they're retired.
Liquidity and Portability
Liquidity and portability are two other important concerns. While a guaranteed income in retirement is important, life circumstances and investment needs can and do change over time. So plan participants want the ability to shift dollars around from income to equity-oriented investments if their situation changes. Because we live in a highly mobile and transient society, it's important that participants to retain their guaranteed income should they leave their current employer.
Upward Trend
Taking the necessary steps to build a retirement income can help participants feel more confident about the future, today and tomorrow. With a growing acceptance of income products for retirement plans by both plan sponsors and participants, studies about America's retirement preparedness might finally start taking a more positive, upward trend. I'm confident of it.
403(b) Plans Progressing Despite Shaky Economy
New survey from the Plan Sponsor Council of America confirms
employers' enduring commitments to 403(b)s
DES MOINES, Iowa - In the face of prolonged economic instability, 403(b) plan sponsors are forging ahead with a variety of plan improvements- such as increased use of automatic enrollment, greater participant education, refined investment lineups and more. Consequently, many plans also reported higher participation rates.
These and other insights are revealed in the latest 403(b) plan sponsor survey from the Plan Sponsor Council of America (PSCA). The survey, which is sponsored by the Principal Financial Group®, illustrates 403(b) plan sponsor' dedication to their plans, and their employees, in good times and bad.
"The survey shows that the 403(b) system is actually improving during this volatile period," says David Wray, president, PSCA. "Employers are following through on their commitments to their employees, and employees are responding."
Highlights of the 403(b) plan sponsor survey results include:
- More automatic enrollment. Just over 10 percent of respondents added automatic enrollment in the last year compared to eight percent of 401(k) plans that added automatic enrollment.
- Increased participant education. More than half of organizations increased their employee education efforts, with nearly one-quarter providing education specifically on market volatility.
- A boost in matching contributions. Just over 16 percent of organizations either increased or restored their matching contributions in the past year. Nearly 40 percent of organizations that suspended or reduced their match during the last four years have now restored it to previous levels.
- Refinements to investment lineups. More than 30 percent of organizations changed the investment lineup in the last year, including nearly 65 percent of organizations with 1,000 or more participants.
- Increased participation rates. Nearly 45 percent of respondents indicated an increase in participation, up from 38 percent reporting an increase the previous year.
The survey also gives insight into plan sponsors' evolving awareness of their ERISA status. Compared to the previous survey, fewer plan sponsors identify their plans as non-ERISA plans, and more are uncertain of their plan's ERISA status. Larger 403(b) plans are converting to ERISA status at twice the overall rate.
Overall, the progress of 403(b) plans mirrors that of 401(k) plans. "The survey shows that 403(b) plan sponsors are marching to the same drummer as their 401(k) counterparts, particularly among the largest 403(b) plans," says Aaron Friedman, national non-profit practice leader, The Principal. "Sponsors of smaller 403(b) plans are also progressing in the same way as 401(k) plan sponsors, but at a slower rate than larger 403(b) plans."
Friedman said four times as many of the largest 403(b) plans changed investment lineups and more than twice as many of the larger plans increased education than the smallest 403(b)s.
Full survey results are available at www.psca.org.
Today's Plans: MassMutual's New Pension Funding Scorecard
Helps Defined Benefit Plan Sponsors and Advisors Evaluate
Investment Performance of LDI vs. Traditional Portfolios
Pension plan decision-makers looking more closely at funding volatility
For defined benefit plan sponsors and retirement plan advisors who are concerned about the impact of market volatility on the funded status of their pension plans, MassMutual has a new Pension Funding Scorecard to help them more effectively evaluate portfolio performance.
MassMutual's Pension Funding Scorecard provides a quarter-by-quarter performance comparison for a liability-driven investing (LDI) portfolio vs. a traditional 60% equity/40% fixed income portfolio against the MassMutual Pension Liability Index (MMPLI). The MMPLI is based on aggregating data from defined benefit plans on MassMutual's Retirement Services platform. In addition, MassMutual's Pension Funding Scorecard provides historical returns to help retirement plan advisors, plan administrators and chief financial officers make informed decisions about pension funding approaches. "We are seeing a clear trend among pension plan decision-makers to take a closer look at pension funding volatility. LDI can provide a more predictable approach to managing pension plan assets and liabilities," says Marc Condon, assistant vice president and actuary, MassMutual's Retirement Services Division. "The Pension Funding Scorecard provides a detailed picture of how well LDI portfolios have tracked pension liabilities compared to traditional 60/40 portfolios."
In recent years, LDI has achieved increasing attention for its ability to help mitigate the volatility and unpredictability of pension plan funding status. Proponents advocate that LDI can enable better management of cash flow and more effectively align asset and liability returns over time while streamlining plan administration. In addition, LDI can often help reduce concerns associated with downturns in the equity markets, an issue that has spurred heightened interest in LDI among CFOs and pension committees.
In addition to reporting on portfolio performance, MassMutual's Pension Funding Scorecard provides definitions of commonly used terminology and provides answers to frequently asked questions regarding liability-driven investing and pension funding in general.
MassMutual has been serving the defined benefit plan market for more than 65 years and offers an integrated, consultative team approach to help retirement plan fiduciaries achieve a more predictable plan funding strategy under one experienced provider.
About MassMutual
MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) [of which Retirement Services is a division] and its affiliated companies and sales representatives. MassMutual is headquartered in Springfield, Massachusetts and its major affiliates include: Babson Capital Management LLC; Baring Asset Management Limited; Cornerstone Real Estate Advisers LLC; The First Mercantile Trust Company; MassMutual International LLC; MML Investors Services, LLC, Member FINRA and SIPC; OppenheimerFunds, Inc.; and The MassMutual Trust Company, FSB.
Plan sponsors should be exploring
benefits of adopting full lump sum provision under PPA
How to 'de-risk' pension plans
Prudential Retirement is urging its defined benefit clients to consult plan actuaries and investment strategists as they evaluate the financial health of their defined benefit plans and review new pension plan de-risking opportunities provided under the Pension Protection Act of 2006. Prudential Retirement is a business unit of Prudential Financial, Inc. (NYSE: PRU).
As a result of rules established by the Pension Protection Act of 2006 that will next year change the interest rates for calculating minimum lump sum benefits for qualified pension plans and finalize the gradual transition to corporate bond rates, the size of defined benefit lump sum payouts will generally shrink in 2012 relative to payouts under prior rules.
"Plan sponsors and participants are seeking counsel on these new rules. As a leading retirement plan administrator, it is Prudential Retirement's responsibility to provide guidance to our defined benefit clients and help them develop a more cost-effective benefit risk transfer strategy for both active and frozen plans," said Joan Bozek, vice president, Defined Benefit Product, Service, and Operations, Prudential Retirement. "Prudential has ramped up its team to offer actuarial analysis, consulting and information to our defined benefit clients to ensure optimal implementation and seamless administration during this process."
Prudential's new white paper, "Retirement Plan Strategies: De-risking pensions - emerging opportunity through lump sum cash-outs under the Pension Protection Act of 2006," is based on market research conducted by Prudential Retirement that explains the opportunity and outlines the advantages, decision points and offers a framework for the transition of the process. Chief financial officers and heads of human resources departments were interviewed to gain a better understanding of their knowledge of various forms of pension risk transfer management and techniques.
"While there is an accelerating rate of acceptance for adding lump sum payout provisions to pension plans, through this research, we have learned that many plan sponsors have yet to explore the variety of financial advantages of the cost effective and easily administered risk transfer strategy," continued Bozek.
Prudential Retirement delivers retirement plan solutions for public, private, and non-profit organizations. Services include state-of-the-art record keeping, administrative services, investment management, comprehensive employee investment education and communications, and trustee services. With over 85 years of retirement experience, Prudential Retirement helps meet the needs of over 3.6 million participants and annuitants. Prudential Retirement has $214.7 billion in retirement account values as of September 30, 2011.
Prudential Financial, Inc. (NYSE: PRU), a financial services leader with approximately $871 billion of assets under management as of September 30, 2011, has operations in the United States, Asia, Europe, and Latin America. Prudential’s diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. In the U.S., Prudential’s iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit here.
Reaching Out to Retirees Makes All the Difference
When It Comes to Rolling Over Assets
Active contact can help keep assets under management
A new LIMRA study revealed that retirees and pre-retirees who are proactively contacted by their retirement plan provider around the time they leave their employer are twice as likely to keep their retirement plan assets with the plan provider.
"With more than $400 billion per year rolling out of employer-sponsored retirement plans and into IRAs, plan providers are looking for ways to keep these assets under management," said Matthew Drinkwater, associate managing director, LIMRA Retirement Research. "Our study found participants who are contacted around the time that they retire or leave their employer were much more likely to retain their money in their employer-sponsored plan account."
Not all contact is equal, however. The study found that 'active' contact methods (e.g., phone, in-person contact) that allow for personal two-way communication are more effective than 'passive' methods such as postal mail or email. Plan providers should consider expanding their call center staff, rather than expanding the retention program's mailing budget, to effectively reach out and retain plan participants.
While initial retention is important to plan providers, it doesn't eliminate the risk of participants deciding to roll over their balances at any time. In fact, the study found that half of stay-in-plan participants were not committed to remaining in the plan and nearly 20 percent said they had not considered their alternatives yet. Furthermore, only 24 percent of retirees and 15 percent of pre-retirees who cashed or rolled their money out of the plan invested the money with that same plan provider. Consistent with prior LIMRA studies, mutual funds are the most commonly selected destination for rollover assets, especially among higher-balance participants.
There are other factors that can play into whether a participant remains in their plan
- Retirees and pre-retirees who have contributed to their DC plans for 20 years or more are significantly more likely than others to leave the money in the plan and remain committed to doing so. Most of these long-tenured individuals have stronger relationships with both the employer and plan provider.
- Former employees of education, non-profit and public-sector employers are significantly more likely than former employees of private-sector employers to leave their money in the plan. For example, among public sector workers, 50 percent of assets were retained in plan and committed as compared to private sector workers at small companies (under 100 employees), where only 14 percent of assets were retained and committed. Among former private-sector workers, in-plan retention improves with increased employer size.
- Individuals who left money in the plan but are not committed to keeping it there, or have rolled their money out, had lower satisfaction levels with the plan provider than those who rolled to retail products or are committed to remaining in the plan. Plan providers that contact participants frequently and establish a positive relationship are more likely to develop a higher satisfaction rate and therefore retain more assets.
- Individuals with financial advisors/planners are less likely to keep their assets with the provider of the employer-sponsored plan. LIMRA recommends plan providers offer consultations with an affiliated financial professional, which, when used by a participant, improved the amount of retained and committed assets compared to those who used an independent advisor.
"Time is of the essence," noted Drinkwater. "As we have seen in prior studies, half of all assets represented by those surveyed were distributed within 12 months. It is critical to engage retirees and terminated pre-retirees as early as possible to have a chance of retaining their assets."
The survey, conducted in the spring of 2011, included 1,170 retirees and pre-retirees (aged 55-70) who terminated with their employer over the last three years, were involved in making financial decisions for the household, and had at least $10,000 in their DC plan accounts as of the time of retirement/termination.
Americans Stressed About Economy and Personal Finances
more than Job or Health
Workers' top financial New Year's resolutions: save and pay off credit card debt
DES MOINES, Iowa - New research from the Principal Financial Well-Being Index shows the economy is the greatest source of stress for Americans, followed by their own personal finances, job and health. Half of retirees (52 percent) and two out of five workers (42 percent) reported a high stress level with regard to the economy, while 30 percent of retirees and 34 percent of workers said personal finances caused high stress. Less than a third of workers (30 percent) say their job causes stress and far fewer (19 percent of retirees and 15 percent of employees) report stress over physical health.
The Principal Financial Well-Being Index, which surveys both American workers at growing businesses with 10 to 1,000 workers and retired Americans, is released quarterly by the Principal Financial Group and is conducted online by Harris Interactive.
Americans over the age of 50 (51 percent of those 50-64 years and 59 percent of those 65 years and older) reported higher stress levels regarding the economy than those under 50 (30 percent of those 18-34 years and 40 percent of those 35-49 years). Overall, females (41 percent) were significantly more likely than males (29 percent) to rate their stress level related to their personal finances as high.
"In today's uncertain economic environment, it is important for Americans to focus on what they can control versus what they cannot," said Luke Vandermillen, vice president of retirement and investor services at The Principal. "Having a financial strategy and actively saving for financial emergencies and retirement can help reduce some of the pressures and anxiety many are feeling today."
Workers and retirees nervous about ongoing market volatility
With the economy a main source of stress, many Americans also report concern over market volatility impacting their long-term and short-term financial well-being. Two out of five workers (41 percent) and one-third of retirees say they are nervous about their ability to save due to market volatility. Another quarter of workers (26 percent) and one-third of retirees have reduced their spending because they have lost money due to market volatility. Furthermore, 22 percent of workers and 18 percent of retirees have moved to a more conservative investment approach.
Those who work with an advisor are more likely to take action, such as:
- Reducing spending because they have lost money (33 percent of workers who use a financial professional; 24 percent of workers who do not use a financial professional);
- Moving to a more conservative investment approach (33 percent of workers who use a financial professional; 19 percent of workers who do not use a financial professional).
"The fact that Americans are paying attention to the market is a good sign," said Vandermillen. "With today's volatility, it is more important than ever to have a plan and stick to it. Working with an advisor is a good first step in making sure you are moving toward greater long-term financial security."
Americans seek to correct 2011's financial blunders in 2012
When asked to select their top financial blunder of 2011, approximately one out of five (19 percent) workers said that they did not save enough during the year. And 18 percent of workers said increasing debt was their top mistake.
Looking toward 2012, workers' top financial-specific New Year's resolutions were saving a set amount of money each month and paying off credit card debt- both selected by 26 percent of workers. Twenty-one percent of workers also said they are resolving to reduce their spending by a specific amount each month in 2012.
While Americans are hoping to right the wrongs of 2011, many have concerns about the coming year, which may impact their financial decisions. For workers, top concerns for 2012 were:
- Economic uncertainty (62 percent)
- Gas prices (58 percent)
- Health care costs (55 percent)
- Food prices (49 percent)
- Increased taxes (45 percent)
- Americans spending smarter this holiday season
More than two out of five workers (41 percent) are spending less on gifts and scaling back (39 percent) the number of people they will buy for this year. Most will pay for holiday gifts without going into debt. Thirty-one percent will pay with credit cards which they will pay off, 29 percent will pay in cash and 22 percent will pay by debit card.
See the full report and past results here.
Enrollment's New Normal:
OnLine access, 24/7, coupled with user-friendly interface has streamlined the benefits market
by Elena Wu
Ms. Wu is Vice President, Group Insurance, The Guardian Life Insurance Company of America. She can be reached at elena_wu@glic.com
As 2012 approaches, it is clear that we've entered a new era in benefits enrollment. The new normal is anchored online and open for access 24 hours a day, seven days a week. Online enrollment is simplifying the process all around, alleviating the administrative burden for employers and giving employees an all-access pass to their benefits. And there's no denying its popularity. We conducted a recent survey that found that 62% of workers now sign up for benefits online compared to 29% in 2005, an 8% jump in the last year alone.
While online benefits enrollment has become the new normal, with its use more than doubling in five years, what we're also seeing is a shift in attitudes, needs and technology behaviors among the workforce. Employers are beginning to adapt to these changing dynamics by offering benefit packages through online interfaces that streamline the learning and evaluation process for all of their workers. The internet's reach makes it possible to set up one-stop platforms where employers and employees have access to all of their collective benefit plans, across carriers, through a single interface.
This is a reality that's very much in step with the times. Now that employers are shifting more of the responsibility and selection of benefit options to their workforce, they can rely on carriers to handle more of the high touch administrative tasks like educating employees and guiding them through the selection process. Employees for their part now have a convenient way to access and review options whenever, and however often, they want. Given the complexity of benefits evaluation and the identification of the most appropriate offerings, employees have expressed a strong need for simplification. In fact, we've learned that a majority of workers (56%), irrespective of age or educational level, believe a single, consolidated web-based platform that integrates all of their benefits allows them to better comprehend and consider their insurance options, make selections and appreciate the value of benefits available to them.
Leveraging Online Enrollment's Popularity
Now, the challenge our industry is facing is figuring out how to leverage the popularity of new platforms in order to expand our market. Case in point: outreach to millennials, the smartphone-tethered, texting 20-something's that are the newest members of the workforce. For all the successes marked by online enrollment, we've found them to be the most underinsured generation. A smaller percentage of the group, 78%, is currently enrolled in worksite benefits, compared to 92% for older colleagues on the job. Take life and disability coverage into consideration and the gap grows wider:48% of the Millennials in the study had life insurance compared to 71% of their older counterparts; 53% of Millennials were enrolled in disability insurance compared to 68% of the their Gen X and Boomer colleagues. Those numbers are more likely to give pause given the fact that, according to the survey, Millennials were by far the most confident about their ability to make the right benefit decisions, with 96% feeling 'highly confident' versus 66% of Gen Xers and 64% of Baby Boomers.
Riding the Wave
Employees across the board recognize the advantages online enrollment has brought to the process. For employees, taking everything online simplifies the process of combing through benefit options and enrolling. Employers are going to pick the best carriers. But when it comes to enrollment, while all of that is good, employees want a streamlined enrollment process, one interaction. Consolidated web-based platforms take internet enrollment's convenience one step further by bringing all of the information about an employer's benefit package together in one spot. They let employees compare options side-by-side and help them appreciate the breadth, and value, of their benefits package.
There's a lot for employers to like, too. The internet now takes much of the administrative burden off their shoulders. It reduces paperwork and increases efficiency and accuracy through automated delivery of information to insurance carriers. For small and mid-sized companies especially online support makes it possible to lighten the load and at the same time provide employees with better resources. In the past, online plan aggregation was available only to the very largest corporations with a payroll of 1000 or more. In the current market, innovative carriers have found ways to bring that level of service to companies of 50 or so employees.
And while Millennials are generally perceived as the generation that would overwhelmingly prefer to evaluate benefit offerings through online platforms, in effect, a majority of all workers, according to our data, (54%), indicated that a consolidated web portal would help employees appreciate the value of available benefits more effectively giving employers even more incentive to offer this service.
Work to Do
While the popularity of online enrollment is without question, there's still work to do. People are busy. All too often other concerns push the process of researching benefits to the side. Just over three-quarters of participants spent two hours or less reviewing their benefits. What's more, many aren’t taking advantage of professional assistance that is available to them. Just 37% of respondents attended a benefits meeting; only 29% spoke with an advisor and a mere 28% used planning tools.
Going forward, our industry will need to strike a balance between convenience and our duty to inform customers. On the one hand, we benefit when the web helps employers spend less time on handholding and other administrative duties. It's also a boon to our business when employees feel that their time spent on online enrollment is more productive. When workers fee that they accomplish what they need to more quickly and efficiently enrollment rises and retention rates go up as well. At the same time, though, we have to find a way to make sure our employers and planholders get what they need.
Education is key in providing a holistic program that can help employees to engage with their benefit options to fully and accurately comprehend their offerings and evaluate their needs.
Looking Ahead
Most employees are not taking full advantage of available company resources to help them make informed decisions about benefits. In fact, employees' benefits engagement and decision-making has not substantially improved with the advances in technology, despite the convenience it offers. As this do-it-yourself attitude continues to prevail, it underscores the critical opportunity companies have to evaluate and alter their communication strategies to better engage and educate employees about their benefit offerings.
Employer health insurance premiums increased 50 percent
from 2003 to 2010; Employees share of premium increased 63 percent
Per-Person Deductibles Doubled; Workers Paid More for Health Insurance
and Got Less Protective Coverage in Years Leading Up to Passage of Affordable Care Act
New York, NY, November 17, 2011 - Premiums for employer-sponsored family health insurance increased by 50 percent from 2003 to 2010, and the annual amount that employees pay toward their insurance increased by 63 percent as businesses required employees to contribute a greater share, according to a new Commonwealth Fund report that examines state trends in health insurance costs. The report finds that health insurance costs are outpacing income growth in every state in the country. At the same time, premiums are buying less protective coverage: per-person deductibles doubled for employees working for large as well as small firms over the same time period.
According to the report, State Trends in Premiums and Deductibles, 2003-2010: The Need for Action to Address Rising Costs, by 2010, 62 percent of the U.S. population lived in a state where health insurance premiums equaled 20 percent or more of earnings for a middle-income individual under age 65. Today there are virtually no states where premiums are relatively low compared to income. In 2003, there were 13 states where annual premiums constituted less than 14 percent of the median (middle) income; by 2010, there were none.
"Whether you live in California, Montana, or West Virginia, health insurance is expensive. Out-of-pocket costs for premiums and care are consuming a larger share of people's incomes at a time when incomes are down in a majority of states," said Commonwealth Fund Senior Vice President Cathy Schoen, lead author of the report. "Workers are paying more for less financial protection. The steady rise in costs from 2003 through 2010, before enactment of the Affordable Care Act, points to the urgent need for health insurance market and health care system reforms."
The analysis of state-by-state trends between 2003 and 2010 finds that premiums for employer sponsored family health insurance increased 50 percent across states, reaching an average of $13,871 a year by 2010. Annual premiums rose in every state, with increases ranging from 33 percent in Idaho to 70 percent in Mississippi. Premiums for family coverage were highest in New 2 York, Rhode Island, Connecticut, Florida, New Hampshire, and Washington, D.C., ranging from $14,730 to $15,206. But, the report finds that costs were high even in the 'lowest' average-cost states. Premiums ranged from $11,379 to $12,409 in Idaho, Arkansas, Hawaii, Montana, and Alabama, the five states with the lowest average costs for private employer-based coverage.
Employees Are Paying More for Less
As premium costs have risen, employers have asked employees to contribute more to their health insurance costs by paying a larger share of premiums and accepting higher deductibles. The report shows that despite stagnant or declining incomes, the annual amount employees contributed to their health insurance premiums increased by 63 percent between 2003 and 2010. By 2010, the cost to employees rose to an average of $3,721 a year for a family policy. Workers in Michigan, Montana, Vermont, Pennsylvania, and Kentucky had the lowest average annual costs for their share of premiums, while workers in Delaware, Maine, Virginia, Texas and Florida made the highest contributions.
Despite paying more for their health insurance, employees are getting coverage that offers less protection. The report finds that per-person deductibles increased an average of 98 percent across states from 2003 to 2010. By 2010, 74 percent of workers faced a deductible, compared to 52 percent in 2003. Average deductibles exceeded $1,000 in 29 states in 2010; in 2003, not one state had an average deductible of more than $1,000. Deductibles were up for employees working in large as well as small firms, although employees of small firms generally faced higher deductibles than employee of large firms did. Deductibles were highest in Wyoming, where the average was $1,479, and lowest in Hawaii, where the average was $519.
Future Trends
The report's authors say that if the historic rate of increase between 2003 and 2010, before enactment of the Affordable Care Act, were to continue, the average premium for family health insurance coverage would increase 72 percent by 2020, reaching nearly $24,000 a year. Slowing the rate of growth even modestly would make a significant difference for individuals, families, and businesses. Compared to historical trends, reducing the annual growth in premiums by even one percentage point would lead to $2,161 in annual premium cost savings for families by 2020. Slowing the rate of growth by 1.5 percent a year would yield savings of $3,173.
The authors note that the Affordable Care Act includes a range of insurance market reforms aimed at lowering premium growth, improving health benefits, and ensuring near-universal coverage. These include a set of affordable insurance options available through new state insurance exchanges, rules limiting insurance administrative costs and profits as a share of premiums, and review of excessive insurance premium increases. In addition, the law contains payment and health care system reforms that seek to slow the growth in costs. The authors point to the urgent need to spread reforms to private as well as public insurance.
Moving forward, the report authors conclude that lowering health care premium growth will require a significant focus on reforming how health care is paid for in the private sector, as well as in public programs like Medicare and Medicaid. In order to improve quality of care while slowing costs, wasteful overhead spending must be lowered and innovative ways of paying for care tested and spread broadly to maximize their impact.
"The combination of rapidly rising costs and stagnant incomes is putting families in an untenable situation," said Commonwealth Fund President Karen Davis. "New rules for insurers, along with new models of health care delivery such as accountable care organizations and new ways of paying doctors and hospitals, can help control health care costs and provide families and business owners with the relief they need."
The report is available here.
An interactive map with premiums in each state is available here .
Key Employees Optimistic About Employers' Future, Not Economy
New research from The Principal studies retirement plan participants and their employers
DES MOINES, Iowa - Key employees, those most critical to a business, show positive signs for retirement savings in 2012 according to new research from the Principal Financial Group. Nearly all surveyed indicate they will either increase (37 percent) or maintain (58 percent) contributions to their employer's nonqualified deferred compensation plan in the coming year. Of those planning to increase contributions almost eight in 10 (78 percent) cite they believe in the success of their employer, an increase of 14 percentage points from the 2010 survey results.
The survey of American workers participating in nonqualified deferred compensation retirement plans and their employers was conducted with the Boston Research Group and The Principal. While key employees report optimism in their employers, the same does not hold true for their view of the economy. In a recent survey of the Principal Financial Well-Being Index, key employees (41 percent) are significantly more pessimistic than all other employees (28 percent) when it comes to their sentiment regarding their economic outlook for the rest of 2011. And, seven in ten (72 percent) key employees think the economic outlook for 2012 will be same or worse.
"Volatile financial markets have no doubt created concern about the future of the economy, yet key employees continue to gain confidence in the future of their employer," said Gary Dorton, vice president of nonqualified benefits for the Principal Financial Group. "Employers recognize their key employees are critical to the success of the business. They want to keep them to protect the future of their business, but also help them save for their own financial future through multiple retirement savings options."
In the Boston Research Group survey, nine in 10 employers (94 percent) report the most important reason they offer a nonqualified deferred compensation plan is to allow employees to save additional money for retirement. Other top reasons include providing a competitive recruiting package (84 percent) and retaining key employees (78 percent). Nearly three in five employers (59 percent) who sponsor these plans make employer contributions.
"Many people assume nonqualified plans are only for Wall Street when in reality, these are really main street employees who are key to the success of their employer," Dorton said. Nearly one-third (32 percent) of participants responding to the survey were mid-level managers, which demonstrates nonqualified deferred compensation plans are available to a broad group of employees.
For more news and insights from The Principal, connect with us on Twitter at: here.
About the Principal Financial Group
The Principal Financial Group (The Principal) is a global investment management leader including retirement services, insurance solutions and asset management. The Principal offers businesses, individuals and institutional clients a wide range of financial products and services, including retirement, asset management and insurance through its diverse family of financial services companies. Founded in 1879 and a member of the FORTUNE 500, the Principal Financial Group has $320.8 billion in assets under management and serves some 17.8 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
The Path Forward Study
Engaging Under-35 Workers a Challenge for Defined Contribution Plans
New Study Recommends Changes to Target Post-Boomer Generation
CHICAGO - U.S. companies must act now to engage younger workers in employer-sponsored defined contribution plans if up-and-coming generations are to have a realistic chance of achieving a financially secure retirement, according to a new study from Northern Trust.
The Path Forward: Engaging the Younger Employee in DC Plan Participation, the second installment of Northern Trust's research series on the future of DC plans, notes that workers under age 35 are likely to be more dependent on DC plans for their retirement savings than previous generations, as the future appears less certain for both defined benefit pension plans and Social Security. While the 75 million-strong Baby Boom generation receives extra attention as it moves closer to retirement, Northern Trust's report argues that the time has come for employers to direct time and resources specifically to the approximately 61.5 million workers who are under age 35.
"Employers should focus on this group of younger workers for two reasons," said Bob Browne, Chief Investment Officer of Northern Trust. "First, this is a generation of workers for whom company-sponsored DC and 401(k) plans represent the primary - and in many cases the only - vehicle for retirement savings. Second, these young workers still have time to make and implement choices that will have a meaningful, positive effect on their financial situation later in life."
To assess the current status of DC plans and develop recommendations for reaching younger workers, Northern Trust engaged Greenwich Associates, the leading research-based strategy management services firm, to interview 45 DC plan sponsors at some of the largest and most well-regarded companies in the United States, and 11 leading DC investment consultants. Altogether the DC plans included in the analysis represent more than 1.5 million participants and more than $175 billion in assets.
While most plan sponsors expressed confidence in their plan's ability to prepare younger workers for retirement, nearly 40 percent of plan sponsors and a majority of consultants interviewed were neutral or less than confident on that question. The study indicates that plan sponsors could take a number of steps in the near, medium and longer term to better engage these younger workers:
Segment plan participants by age groups (near-term)
Only 4 percent of plan sponsors participating had established specific goals for engaging younger workers in their DC plans, and just 24 percent have strategies aimed at increasing participation by different age groups.
Tailor education plans to participant needs (near-term)
Plan sponsors reported that under-35 workers lag their older colleagues in both participation rates and contribution levels; respondents also noted that younger workers are typically more receptive to new media such as social networking as an education tool.
Reduce ‘leakage’ from cash-outs and loans (near term)
91 percent of plan sponsors allow participants to take loans on their retirement savings, and participants under age 35 were more likely to have loans outstanding.
Implement more auto plan features (medium-term)
86 percent of respondents say that auto-enrollment, auto-escalation and similar features have proven effective for younger employees.
Align target retirement date funds with participant needs (medium-term)
Under-35 employees are highly likely to select the target date investment option. Plan sponsors should profile their participants - based on age and savings demographics, other retirement benefits and risk tolerance, among others - and select a glidepath that most closely matches that profile.
Require participation (long-term) - 63 percent of those participating in the study believe DC plan participation should be mandatory, which would have a disproportionate impact on younger workers, who enroll at lower rates than those over age 35.
"Setting goals and building marketing strategies to reach these younger workers is a critical early step in improving DC plan funding effectiveness," said Jim Danaher, Managing Director of the Defined Contribution Solutions Group at Northern Trust. "Workers who wait until the age of 40 or older to begin saving for retirement very likely will fall short of their financial goals. By contrast, workers who begin participating in DC plans in their 20s or even early 30s have an opportunity to achieve their goal - if they stay engaged and make the right decisions."
More details of the study, including comments from participants, can be found in the full report on Northern Trust's website.
This research is the second in a Northern Trust series focusing on The Path Forward, launched in 2010 to examine candid perspectives of leading industry practitioners regarding DC industry challenges and potential solutions. The first report in the series, Designing the Ideal Defined Contribution Plan, outlined the structures, practices and features that DC plan sponsors and investment consultants would include in their visions of the ideal plan. Insights generated from these research-driven initiatives are intended to inform the decisions of companies, public plan sponsors and policy makers alike.
The Defined Contribution Solutions Group at Northern Trust is committed to helping plan sponsors meet the varied needs of their plan participants. Our experienced team employs a consultative approach to help clients design a comprehensive service suite that leverages Northern Trust's broad range of investment strategies and asset servicing options. Northern Trust manages DC plan assets in excess of $60 billion and has more than $190 billion in DC assets under custody.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 18 U.S. states and 16 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2011, Northern Trust had assets under custody of US$4.2 trillion, and assets under investment management of US$644.2 billion. For more than 120 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit www.northerntrust.com.
Employers Say Retirement Plan Success Fueled by Tax Deferrals
Removing tax incentives could derail financial security of American workers
DES MOINES, Iowa - A new survey of small and medium-sized employers finds that eliminating retirement plan tax incentives could have a significant negative impact on retirement security by discouraging savings and reducing the number of plans. According to research from the Principal Financial Group, three-quarters (75 percent) of employers say current tax deferral incentives are the most attractive retirement plan feature to employees and more than eight in 10 say participation and savings would decrease if the incentives were removed.
"While participation rates indicate a plan's popularity, they don't measure true plan success in the form of retirement readiness: how well the plan delivers participants to retirement with adequate income"
The 2011 Principal Financial Group Retirement Readiness Survey questioned small and medium-sized employers across the United States - those who offer defined contribution plans and those who do not. The survey of 1,305 benefit decision makers was commissioned by The Principal and conducted online by Harris Interactive in May and June 2011.
Key findings include:
- Ninety-two percent of employers state that retirement tax incentives for workers are important in their decision to offer a 401(k) plan.
- Nearly two-thirds (65 percent) say their desire to continue offering a plan would decrease if those incentives were removed.
- More than a third (36 percent) of employers who don't currently offer a plan say the lack of tax incentives would decrease their desire to start offering one.
"Employers offer retirement plans voluntarily, so it is critically important to understand how proposed changes to the system would impact their decisions," said Greg Burrows, senior vice president, retirement & investor services at The Principal. "It is especially vital to listen to smaller employers because they are the economic backbone of the nation. What we are hearing loud and clear in this survey is that employers value the current voluntary system and they want Congress to preserve retirement savings tax incentives."
The survey finds that many employers believe that even a reduction in tax incentives would shrink worker participation and contribution levels as well as diminish their own desire to offer a plan. More than half (54 percent) say tax deferral limits should be raised, not lowered.
"With recent economic volatility and burgeoning baby boomer retirements, the last thing we need to do is remove an incentive to save that is working," said Burrows. "Instead, we need to encourage more employers to offer retirement plans and enable Americans to save effectively for retirement so they can achieve their financial dreams. That means doing everything we can to encourage workers to save early, save often and save enough."
Rethinking and reinforcing retirement readiness
Two out of three employers who offer a plan believe the current 401(k) system is effective in helping workers achieve adequate retirement savings. Most believe employees need to be saving on average at least between 12 and 16 percent - including employer match - over the course of a career. Many are willing to make changes to their programs if shown research the actions would boost savings.
- Sixty-six percent of employers who offer a plan would be willing to improve education to promote double-digit savings levels.
- Twenty-two percent would be more likely to add auto enrollment.
- Forty percent would consider a 6 percent or 8 percent default deferral rate for workers who are auto enrolled in the plan.
Thirty-two percent of employers who use auto enrollment would be willing to combine a 6 percent deferral rate with a 1 percent auto increase up to 15 percent if shown research that participants wouldn't opt out.
Measuring worker retirement readiness: is the plan popular or successful?
- While 75 percent of employers feel they have a successful defined contribution /401(k) plan, 82 percent measure success by participation rates.
- Only 4 percent of employers who offer a plan measure if their workers are on track to have adequate retirement income.
- Only 15 percent consider retirement income ratios when designing their retirement plan.
"While participation rates indicate a plan's popularity, they don't measure true plan success in the form of retirement readiness: how well the plan delivers participants to retirement with adequate income," Burrows said. "We are providing tools to help employers measure success by calculating retirement income ratios. From there they can make plan design decisions based on how well features will get employees on track to replace 85 percent of their pre-retirement income."
See the full report and a white paper, How to Move from a Popular Plan to a Successful Plan here.
For more news and insights from The Principal, connect with us on Twitter .
2012 Forecast: Six Top Trends in Workplace Benefits
Growth in voluntary benefits, wellness programs lead Colonial Life's list of what's coming
COLUMBIA, S.C. (Nov. 10, 2011) - After several years of economic woes and health care reform wrangling, the only certainty in the future of workplace benefits may be continued uncertainty. But insurance brokers who want to be prepared for 2012 should pay attention to several emerging trends. Here are the top six predictions for the coming year, according to experts at Colonial Life & Accident Insurance Company, one of the nation's leading employee benefit providers:
Products: Critical illness insurance will continue to attract new customers
With the costs of treating cancer, heart attacks and strokes far exceeding most employees' major medical coverage, critical illness insurance can provide vital out-of-pocket protection to help with both the medical and nonmedical costs associated with treating and recovering from these diseases. Updated versions of this relatively new product include benefits for multiple occurrences of a critical illness, adding to their value. "One way to think of critical illness insurance is as 'living life insurance,'"says Randy Finn, assistant vice president of supplemental health products at Colonial Life, where critical illness sales increased 24 percent from 2009 to 2010. "If you get a serious illness such as cancer and die, life insurance helps with that. But what if you survive? You're likely to have years of financially crippling bills to pay."
Sales: Voluntary insurance sales will continue to grow
Increasing workforce diversity and the need to offer choices to employees with widely varying needs will drive an uptick in sales. Group products will continue to grow as a percentage of voluntary sales, while life insurance sales continue to fall. "There's a big need for better education of workers about the need to protect their most valuable assets with life and disability coverage," points out Jeff Koll, Colonial Life's assistant vice president of life and disability products.
Distribution: Brokers will be increasingly involved in the voluntary benefits market as they continue to look for different revenue streams
Reduced major medical commissions, uncertainty in the market because of health care reform changes and a continued slow economy are forcing brokers to look for new revenue sources. Voluntary benefits will continue to grow as a simple solution. "Brokers are finding they can get in this market with little training and no overhead by partnering with an experienced voluntary benefits carrier," says Jay Hutchins, Colonial Life's vice president of broker marketing and sales. The majority of employers, 59 percent, already work with brokers on their employee benefits plans.1
In a related trend, more brokers will become generalists in an attempt to offer their clients greater value and stave off increasing competition.
Services: Wellness programs will become more prevalent as a way for employers to control health care costs and increase productivity and retention.
With no let-up in sight for rising health care costs, employers are increasingly seeing the value of workplace wellness programs as a way to control premium increases and claims costs. Ranging from health screening tools to online nurse services, wellness-related offerings will become a bigger part of benefits providers' value-added services.
However, the key to seeing a true bottom-line benefit may be as much about employee awareness and engagement as it is about the actual service. "Good communication about wellness programs is essential for them to be effective," says Steve Bygott, Colonial Life's assistant vice president of marketing analysis and programs. "Without a focused effort to ensure employees understand the program and its value to them, participation tends to be low."
Technology: Employees will have more options for decision-support tools using online technology
As employers continue to push benefits decision-making responsibility to their employees, look for a proliferation of websites and interactive tools to help them understand different types of coverage and which ones meet their unique needs. An example is Colonial Life's Benefits Learning Center website (www.benefitslearningcenter.com), launched last May featuring Youville, an entertaining interactive tool for workers to individualize their benefits education and explore their unique benefits needs.
Research shows most employees don't actively search for information about their benefits, don't want frequent communication from their employers about them, and don't dedicate a significant amount of time to learning more about them. Online decision-support tools such as Youville offer employees important benefits information with minimal effort, says Dana Bagwell, Colonial Life's director of benefits communication and education. "These tools give employees easy access to the information they need to make informed benefits decisions, all in one place."
Economy: Government sector employers will focus on cost containment measures for their benefits plans
Government employers are strongly feeling the effects of several years of reduced tax revenues, and now find themselves in the unfamiliar position of being forced to reduce benefits or raise their employees' share of the costs. A recent survey of public sector human resources managers showed 80 percent of them are looking at ways to reduce the cost of their employee benefits plans, and 58 percent said controlling costs is their top priority for their benefits programs.
"The good news is there's a huge opportunity for government employers to control costs by changing their benefits plan design," says Pat McCullough, Colonial Life's public sector practice leader. "Government employers have been slower than other industry segments to shift away from the more comprehensive, paternalistic benefits models of the past, but there are solutions to help them offer strong packages and still save money."
Colonial Life & Accident Insurance Company is a market leader in providing insurance benefits for employees and their families through the workplace, along with individual benefits education, advanced yet simple-to-use enrollment technology and quality personal service. Colonial Life offers disability, life and supplemental accident and health insurance policies in 49 states and the District of Columbia. Similar policies, if approved, are underwritten in New York by a Colonial Life affiliate, The Paul Revere Life Insurance Company, Worcester, Mass. Colonial Life is based in Columbia, S.C., and is a subsidiary of Unum Group, one of the world's leading providers of employee benefits. For more information, call Colonial Life at (803) 798-7000 or visit www.coloniallife.com
Selling Short Term Health
Insurance plans offer brokers creative solutions
By Susan Fowler, CFP
Ms. Fowler is Vice President of Sales for UnitedHealthcare's Golden Rule Insurance Company. She can be reached at susanfowler@goldenrule.com.
In today's difficult economy, brokers are discovering that short term health insurance plans are the right fit for their clients who need stopgap coverage in a wide range of circumstances.
The Census Bureau reports that approximately 50 million Americans went without health insurance for some period of time in 2010. For those who lack coverage because they find themselves between jobs, recently graduated from school and looking for work, facing waiting periods before they are covered by an employer group plan or are early retirees awaiting Medicare eligibility, a short term plan could be the right solution.
Designed to meet people's needs for more flexible and cost-effective approaches to coverage, short term plans are designed for clients whose lives are in periods of transition. Premiums are typically less than what an individual would pay for many renewable plans, and the application process is quick and simple. There are choices of plan types and deductibles, typically providing one to 11 months of coverage. Once that term is up, consumers can apply for an additional short term plan in states that allow it.
"I'm seeing an increase in demand for short term plans, primarily due to the poor economy," says Jim Bokshan, a broker with Association Member Benefits Inc. (AMBI) based in the Detroit area. "Many adults in our area are unemployed or underemployed and they don't have any health coverage. They know they need to be covered but they can't afford their COBRA plan, or even an individual co-pay or HSA plan. I suggest getting a short term plan, which many clients view to be a good temporary solution until they get a new job with benefits."
Consumers can select the plan design, deductibles, months of coverage and payment options that suit their individual needs. Yet, many consumers come to brokers unaware that short term plans are an option, and brokers must educate their clients that they are a viable alternative.
Short term plans can provide quick and affordable solution for people who need insurance to cover major, unforeseen medical expenses during a specified period of time, says broker Robert Allison of Allison Insurance Agency based in Oklahoma City.
Numbers are rising
"I don't recommend carrying short term coverage as a permanent solution, but when people are in a crunch, I can get them covered as soon as the next night because the application process is simple," Allison said. "Many of my clients are recently retired, and they choose short term coverage to fill the gap rather than spend a lot of money for a permanent policy before they become eligible for Medicare. Definitely, the number of clients who are turning to short term coverage has gone up."
Some short term plans also allow clients to add optional enhancements such as supplemental accident and critical-illness benefits. Deductibles can range from $500 to $10,000. Application is quick and easy online, and applicants usually hear back within 48 hours. The best plans offer the flexibility to discontinue coverage at any time without penalty, a choice of deductibles to fit a client's needs and budget, several payment options, quick approval time, and discounted services over a large, high-quality provider network, Bokshan says.
"I use short term plans for people who are out of work and for those who are starting a new job and need to be covered in the probationary period before their employer's group coverage begins," Bokshan says. "I also insure individuals in their early 60s as the cost of traditional health plans is very expensive at those ages and they need to be covered before they're eligible for Medicare. Then, when they do reach 65, they will come to me for their Medicare Supplement coverage."
Today, more than ever, there is a need for budget-conscious health plans for individuals and families who suddenly find themselves without health insurance, for whatever reason. While most consumers understand the importance of having health care coverage, especially for protection against major, unforeseen expenses, many don't know that there are lower-cost, high quality alternatives available, and they don't know how to find them. Fortunately, brokers can provide a valuable service and build their own portfolio of business by offering short term plans that best meet the needs of their clients and their families.
Small Group Self-Funding Products Draw Small-Firm Interest
Employers are seeking greater control, better value and broader choices
By Sam Fleet
Mr. Fleet is President of AmWINS Group Benefits, a leading wholesale broker of comprehensive group insurance programs and administrative services based in Warwick, RI. He can be reached at (203) 924-6401 or ASFquote@amwins.com.
As our country continues to experience the growing pains associated with health care reform, one can barely pick up a newspaper or turn on the news without coming across a story on the topic. One of the biggest challenges facing employers as a result of reform has been the ability to continue providing medical benefits to their workforces. A recurring theme that has recently surfaced is the possibility of implementing self-funded health plans, with a particular focus on small employers (15-75). While mid-size and large businesses have been self funding employee benefits for some time, the small firms are now positioned to do the same in an effort to take greater control of health plan costs. These firms are ready to try something new as raising deductibles and co-pays or even changing carriers hasn't addressed the problem. With these techniques not working, they are starting to wonder about other long-term strategies that do a better job, enabling them to manage their employee benefits programs.
Unlike fully-insured plans, where a group's overall good health goes unrewarded, self-funding can help employers gain more control of their medical costs in both the short and long term as these type of health benefits plans require employers to pay the workforce's medical claims on their own, rather than paying an insurance company to handle them. Self-funded means the risk of large claims is on the company, and that is why many self-funded employers purchase stop-loss insurance that covers catastrophic one time claims or instances when overall claims reach a certain threshold.
For the smaller groups, those in the 15 to 75 lives category, small group stop-loss is one of the easier ways to transition from fully-insured to self funded. This type of ERISA program is designed to incorporate many of the features of self-funding, while eliminating the potential problems many employers found objectionable in the past. Specifically, lasering and setting the aggregate attachment point at 125 percent to 135 percent of the group's expected claims. Lasering is a provision in some stop loss contracts that sets a specific stop loss attachment point at a higher level than the rest of the contract for specific individuals. The aggregate attachment point is the amount of total claims that must be paid before the stop loss carrier begins to reimburse the plan. Both of these practices could potentially leave small employers on the hook for catastrophic claims for sick employees, resulting in a large amount of out-of-pocket money prior to receiving any reimbursements. Avoiding these scenarios is the major benefit of small group stop loss coverage and therefore the ideal choice for employers considering moving to self funding.
One of the advantages in this marketplace is that some carriers will not laser. This is because large losses in these small group programs are pooled across the entire program. Also unlike standard stop loss where the aggregate attachment point makes up for a high percentage of expected claims, the combination of aggregate and specific premium and the plan sponsor's funding is set to compete with fully-insured competition. Both the specific and aggregate stop loss contracts are 12/18, covering claims incurred in the 12 month contract period and paid in the contract period or six months thereafter. This type of contract is designed to adequately cover any claims run-out obligations with the efficiency of the current claims environment. The individual group's initial rates are based on their collective medical conditions, ages, genders and other relevant factors. Renewals will also take into effect underlying utilization and experience.
Like fully-insured coverage, most of the alternatives for plan design choices are pre-selected. The Plan Documents are tested and well thought out standardized Plans, but the employer can still choose among a wide variety of benefit details. Each employer group utilizes the same Master Plan Document to limit benefits that are either overly utilized or abused and eliminate costly state mandates.
Most significantly, some small group self-funded programs provide for health education, wellness and mandatory cost containment. Often, to achieve maximum cost containment, employers must contract with a pre-approved list of vendors including Administrators, a Pharmacy Benefit Manager, a Preferred Provider Organization and Care Management. It may seem daunting at first, but having wellness and cost containment programs are helpful in identifying unknown health risks of the employee populations. Care management can reduce the likelihood of catastrophic medical events, improve health status and decrease risks, in turn, deferring or lowering overall medical expenses. Contracting with these vendors gives an employer the best chance at better controlling costs.
As in a fully-insured plan, the monthly Plan Sponsor liability is fixed. The some stop loss carrier's, 'Aggregate Accommodation'and 'Simultaneous Specific Stop Loss Reimbursement' fund claims are above both the monthly aggregate and the standard $25,000 specific deductible. The Plan Sponsor will fund the entire monthly maximum liability and will never be required to fund higher. As ERISA programs are not fully-insured, it is not required that the carrier accept groups that do not meet their same underwriting standards. Although renewal rates will not reflect large specific losses, they will, in part, reflect the group's experience
Self funding is getting more attention than ever in the wake of health care reform, but it is not a new strategy by any means. What is new are the products and services being developed specifically for the small group market, because during these confusing times, employers are looking for greater control, better value along with choices in designing and developing their company's health plan. Self funding provides many of those benefits, making it a viable option for many companies that would never have considered in the past.
Employees value benefits more than ever
Importance of most benefits has steadily increased since 2008 among employees of all ages
CHATTANOOGA, Tenn. (Oct. 27, 2011) - A recent study commissioned by Unum (NYSE: UNM) and conducted by Harris Interactive shows that benefits matter more than ever to employees.
The third annual study of employees' views toward their benefits and enrollment was conducted online in December following the 2010 benefits enrollment period among more than 1,700 working adults. The research finds the perceived importance of many employee benefits notably increased from 2008 to 2010 across all age groups.
"This economic environment has caused employees to take a hard look at how to protect their income and savings from not only another recession, but from personal hardship, as well," said Bill Dalicandro, vice president at Unum. "Employees are recognizing the important role financial protection benefits in particular can play in protecting their financial stability."
When employees were asked to rate benefits in terms of their importance, regardless of whether or not they were available through their employer, financial protection benefits saw some of the highest gains.
- On a scale of importance from 1 (not at all important) to 10 (extremely important), 53 percent of employees rated long term disability insurance an 8 or higher, a seven-point increase from 2008.
- Half of employees rated short term disability insurance an 8 or higher, up from 45 percent in 2008.
- And 50 percent of employees gave an 8 or higher rating to accidental injury coverage, a 10-point increase from 2008.
The study also finds employees 45 and older consider long term disability more important than life insurance as a benefit.
"This is an encouraging trend because research shows that employees are far more likely to become disabled than die," Dalicandro said. "So while life insurance is still very important to have, employees are also recognizing the need to protect their paychecks should they become disabled during their working years."
But although employees rate the importance of benefits higher, participation has remained relatively constant since 2008 across benefits.
Unum's research also shows employees have had less access to printed benefits education materials and in-person benefits education since 2008, and that some employees are not provided enough time to make informed choices.
"Employees clearly value these benefits, particularly in a struggling economy," Dalicandro said. "Ensuring that they understand their options and feel comfortable making benefits decisions helps them choose the coverages they need and want."
About Unum
Unum is one of the leading providers of employee benefits products and services in the United States and the United Kingdom. Through its subsidiaries, Unum Group paid approximately $6 billion in total benefits to customers in 2010. Visit here
Cutting Edge Information Study
Identifies Where Succession Planning Goes Wrong
Top organizations take steps to understand where succession plans stumble and why they succeed
RESEARCH TRIANGLE PARK, N.C. - A key to good succession planning and improvement is to understand where programs go wrong, says a new study by Cutting Edge Information. Many of the most common mistakes that drive poor succession planning results grow out of misaligned individual and organizational goals.
"A succession plan that does not factor in a corporate vision will suffer from inertia. Companies will continue to hire or promote leaders who fill the same roles as their predecessors without advancing toward new goals."
Many companies have historically failed to take their own strategic mission, goals and organizational values into account when building succession plans. And individuals involved in the succession planning process tend to focus on immediate needs rather than long-term objectives.
Succession Planning: Preparing Tomorrow's Leaders found that the most successful succession plans incorporate a balance of objective criteria and subjective judgments about candidates' ability to take the organization to its maximum potential. Leading companies also focus on candidates with greater breadth and depth of experience and less on industry-specific skills.
"Once companies recognize where their succession plans are failing and do a clear appraisal, it's much easier to take steps to address problems and prevent them from happening again," said Michelle Vitko, research analyst and lead author of Cutting Edge Information's latest human resources study.
Maintaining the status quo can be another key hurdle to developing succession plans. Cutting Edge Information found that companies run into problems when they base a successor's job requirements solely on the current jobholder's responsibilities. Relying on the current jobholder to pick his or her replacement is another common mistake. "Leadership stems from vision and execution," Vitko said. "A succession plan that does not factor in a corporate vision will suffer from inertia. Companies will continue to hire or promote leaders who fill the same roles as their predecessors without advancing toward new goals."
Cutting Edge Information's study draws upon real succession planning strategies and processes from top-performing companies. It provides insights, case studies, sample plans and models from 25 leading companies. Decision-makers can use the report to:
- Reassess succession plans to stay current and address emerging needs.
- Attract and retain top talent.
- Prepare for both expected and unexpected leadership attrition.
See the report here
Public sector employers struggling with benefit costs
Cost containment is top priority of benefits programs
COLUMBIA, S.C. - Budget woes are hitting public sector employers hard, and the effects are going to be felt in their employee benefits programs. That's according to a new survey conducted by Colonial Life & Accident Insurance Company with members of the International Public Management Association for Human Resources last month.
The vast majority - 80 percent - of human resources managers responding to the survey said their organization is looking at ways to reduce the cost of their employee benefits plan. In fact, more than half (58 percent) said controlling costs is the benefits program's top priority. The ability to retain key employees and create employee satisfaction rated a distant second priority at 20 percent.
The survey showed public sector employers plan to make significant changes in their benefits programs within the next year, many of them strategies to control costs:
-Increasing employee health insurance premiums 64 percent
-Implementing wellness programs/promoting healthy behaviors 52 percent
- Increasing employee health insurance deductibles and/or co-pays 45 percent
- Redesigning health plans to include higher deductibles 27 percent
"Budgets are tight and organizations are looking to save money," says Pat McCullough, Colonial Life's assistant vice president, public sector practice leader. "If they can't save through premiums or services, they'll have to reduce head count and nobody wants to do that."
"The results from this survey should enable public sector organizations to anticipate and prepare for any changes they may need to implement in their benefits programs to respond to the current economy," adds Sam Wilkins, IPMA-HR president.
Change drives communication needs
Public sector HR managers almost unanimously agree it's important for employees to understand their benefits and appreciate their employers' investment in them, with 89 percent saying it's very important. However, like their counterparts in commercial industries, they don't think their employees actually do understand their benefits. Just over half - 54 percent - responded their employees have some understanding and only 42 percent said their employees have a good understanding.
"Any time you're introducing changes, especially if it involves cost shifting, a strong communication plan is essential to the success of the entire benefits program," McCullough says. "Public sector employers have a tremendous opportunity to improve benefits communication without raising costs if they partner with a benefits provider that offers communication and enrollment services. It doesn't have to cost them - or the taxpayers - one dime."
A comprehensive communication plan is also important to drive understanding of and participation in wellness programs, McCullough notes. "Wellness programs can have an impact not only on employee satisfaction but directly on the bottom line through reduced claims and absenteeism. But participation tends to be low unless the program is accompanied by good communication."
About IPMA
The International Public Management Association for Human Resources is a nonprofit organization that represents the interests of human resources professionals at all levels of federal, state and local governments as well as worldwide. IPMA-HR's mission is to provide human resources leadership and advocacy on issues such as: classification, compensation, performance management, recruitment and retention and professional development within the public sector.
About Colonial Life
Colonial Life & Accident Insurance Company is a market leader in providing insurance benefits for employees and their families through the workplace, along with individual benefits education, advanced yet simple-to-use enrollment technology and quality personal service. Colonial Life offers disability, life and supplemental accident and health insurance policies in 49 states and the District of Columbia. Similar policies, if approved, are underwritten in New York by a Colonial Life affiliate, The Paul Revere Life Insurance Company, Worcester, Mass. Colonial Life is based in Columbia, S.C., and is a subsidiary of Unum Group, one of the world’s leading providers of employee benefits. For more information about benefits communication, call Colonial Life at (803) 798-7000 or visit www.coloniallife.com.
American workers share perceptions,
challenges associated with retirement planning
Survey reveals younger employees interested in guarantees
NEWARK, N.J. - Prudential Retirement, as part of National Save for Retirement Week, today announced the preliminary results of a poll on Americans' perceptions of workplace retirement plans. The poll was conducted on LinkedIn and can be found at the following address: www.linkedin.com.
"We know that many Americans are struggling with substantial retirement income challenges today"
Among the results - American workers aged 18-36 are more interested in having a guaranteed retirement income feature in their retirement savings plans than those 45 years of age and older. Overall, more than 50 percent of respondents were 'very' interested in a guaranteed retirement income feature, while 23 percent were 'somewhat' interested.
"We know that many Americans are struggling with substantial retirement income challenges today," said James McInnes, senior vice president of product management and development, Prudential Retirement. "These results signal that while many workers are frustrated with the recent market turmoil, they are viewing the markets with a long-term perspective and sticking with retirement planning strategies that involve a guaranteed retirement income feature."
The LinkedIn poll that Prudential Retirement, a business unit of Prudential Financial Inc., (NYSE: PRU) conducted about Americans' perceptions of workplace retirement plans were opened to LinkedIn members starting Sept. 9. National Save for Retirement Week is the first national Congressionally-endorsed event calling on employers to promote the benefits of saving for retirement and encourage their employees to take full advantage of employer-sponsored plans.
The LinkedIn poll also revealed 46 percent of Americans did not change their long-term retirement strategy due to uncertain market conditions. Twenty-five percent, however, said they moved to a 'more conservative' strategy while 14 percent moved to a 'more aggressive' strategy.
"This effort really speaks to how Prudential Retirement is using emerging technologies and social media to directly engage American workers," says Kara Segreto, chief marketing officer, Prudential Retirement. "Additionally, this survey data keeps us closely aligned with the wants and needs of retirement plan participants so that we can meet the challenge of creating retirement security for American workers."
More than 1.5M impressions of the poll have been served to-date and more than 1,400 American workers have responded. The survey is available on LinkedIn through Oct. 31. It was developed to identify potential challenges the general public perceives about retirement planning. The questions focus on the importance of guaranteed income, saving strategies against volatile markets, employees' satisfaction with their retirement plans and with their employer's commitment to helping them save for retirement.
Prudential Retirement delivers retirement plan solutions for public, private, and non-profit organizations. Services include state-of-the-art record keeping, administrative services, investment management, comprehensive employee investment education and communications, and trustee services. With over 85 years of retirement experience, Prudential Retirement helps meet the needs of over 3.6 million participants and annuitants. Prudential Retirement has $220.7 billion in retirement account values as of June 30, 2011.
Prudential Financial, Inc. (NYSE: PRU), a financial services leader with approximately $883 billion of assets under management as of June 30, 2011, has operations in the United States, Asia, Europe, and Latin America. Prudential's diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services. In the U.S., Prudential's iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit here.
Benefits Choices Matter for Millions of Americans during Open Enrollment
Americans are signing up for benefits such as life insurance (83%), DI (66%), and LTCi (21%)
NEWARK, N.J. - October marks the start of open enrollment season for many American workers - their once a year opportunity to take advantage of the valuable personal and financial benefits made available by their employers. The Growing Importance of the Workplace, the first in a series of research briefs stemming from Prudential's Sixth Annual Study of Employee Benefits: Today & Beyond, found that 80% of workers believe the workplace is an important source for personal insurance and savings products.
"Employers can offer their employees the best benefits packages, but they also need to engage employees, so that their benefits offerings can be appreciated, and employees and their families can fully realize the value of the benefits available to them."
The good news from the study is that Americans are signing up for benefits such as life insurance (83%), disability insurance (66%), and long-term care insurance (21%).
"While the life insurance enrollment rate is reassuring, many Americans are not electing sufficient coverage to maintain their families' standard of living in the event of an untimely death, or taking the time to really think through their benefits elections," said Lori High, president of Prudential Group Insurance. "It's important that people take time to make informed choices. They should talk to a financial professional or to their partner about their long-term financial needs before making their benefits selections, or take advantage of online tools and calculators to help determine their needs."
In the current tough economic times, consumers are juggling immediate priorities and expenses, but spending precious little time or effort considering decisions that may significantly affect their financial security. High noted, "Just last year our benefits study illustrated how many Americans intuitively know the importance of selecting their benefits, yet an overwhelming 68% said they make little or no effort in choosing their benefits each year. We're working with our clients to improve the open enrollment experience overall and to make it simpler for consumers to focus on their important benefits decisions."
With employee contributions for health care rising, it is not surprising that according to the research, employees spend the most time focused on health care benefits when enrolling. Although critical, employees need to equally focus on securing an appropriate level of protection against the significant financial impact of disability or the need for long-term care. Underscoring the likelihood of needing disability coverage, in 2010 the Council for Disability Awareness noted 3 in 10 Americans entering the work force today will become disabled before they retire.
Employers play a critical role in helping employees navigate their benefits options and assess what products and plans are the best fit for their personal situation. "The choices Americans will be making over the coming months matter, so companies need to make every effort to ensure that employees are as informed as possible," added High. "We believe that it is important there be a broader dialog among benefits providers, employers, and employees about the impact and implications of benefits choices."
The research shows the various communications about benefits choices include primarily email at the workplace (65%), followed by group meetings during the work day (56%), and mail received at home (52%). These three methods are also the most preferred by employees, named by 55%, 49%, and 39% of plan participants, respectively.
"To reduce information overload, determining the most effective method of communicating with employees is essential," said High. "Employers can offer their employees the best benefits packages, but they also need to engage employees, so that their benefits offerings can be appreciated, and employees and their families can fully realize the value of the benefits available to them."
Reflecting its commitment to education, for this open enrollment season, Prudential has launched a new online educational resource open to all, offering tips and tools to help consumers make informed benefits decisions. Visit www.prudential.com/benefitsmatter to learn more.
The Importance of the Workplace is the first in a series of five research briefs that highlight the major findings from Prudential's Sixth Annual Study of Employee Benefits: Today & Beyond. The research was conducted via the Internet during April and May of 2011, and consisted of three distinct surveys of plan sponsors, plan participants, and broker/consultant audiences.
Prudential Group Insurance manufactures and distributes a full range of group life, long-term and short-term disability, long-term care, dental, and corporate and trust-owned life insurance in the U.S. to institutional clients primarily for use in connection with employee and membership benefits plans. The business also sells individual long-term care insurance, and accidental death and dismemberment, and other ancillary coverages and provides plan administrative services in connection with its insurance coverages.
Prudential Financial, Inc. (NYSE: PRU), a financial services leader, has operations in the United States, Asia, Europe, and Latin America. Prudential's diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services. In the U.S., Prudential's iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit prudential.com
Social Security and Pensions will not be eliminated completely,
but changes are need to make them both sustainable
by Rick Rodgers, CFP
Mr. Rodgers is founder and president of Rodgers & Associates, Lancaster, PA.
The debate about whether Social Security faces a problem and needs to be fixed is over. The 2011 Trustees Report, which was released May 2011, shows that the program already faces massive permanent annual deficits. In net present value terms, Social Security owes $9.1 trillion more in benefits than it will receive in taxes.
Pensions are also on the way out. Private companies can't get rid of them fast enough. Public pensions are unsustainable in their current form. A Pew Center study shows that state pension fund liability climbed 26% in one year to $1.26 trillion in 2009.
I don't believe that Social Security will be eliminated completely nor will pensions. However, changes will need to be made to both to make them sustainable. These changes will most likely include increasing full retirement age, modifying the benefit formula to reduce benefits, and means testing. The changes will most likely be phased so that people age 50 and older will see very little change. People under age 50 will carry most of the burden, because they have a longer period to save and adjust.
Time will become the most important word in the investment vocabulary of younger people who still want to retire at 65. The earlier you start saving and planning, the better your chances of reaching your goals. Personal savings will replace Social Security and pensions for our children.
Parents can help their kids safeguard their retirement by putting the powerful force of compound interest to work for them as soon as possible. One of the most important things to teach your child is the value of savings. Parents should start saving for them until they begin earning their own money. Then, they should insist on having them save something from every dollar they earn. By the time they are out on their own, they should have learned this important habit.
Too many people grew up without any financial guidance. They never learned to save and instead used credit cards to get the things they wanted. They never learned to budget, and so they spent more than they earned. Living on credit instead of disciplining yourself to save for purchases creates a financial house of cards. We were recently reminded of how risky it is to live a lifestyle based on credit. The economic downturn of 2008 caused many people to lose their homes, because they bought more house then they could really afford. This generation of kids can learn from those mistakes. Parents should teach their children how to save and help them get started, so they can build a nest egg worth millions instead of thousands.
Here are some ways to get your kids started
- Start at birth : Just $100 per month growing at 8% from birth will accumulate to $48,000 by the time the child reaches age 18. If they never save another penny from that time on, the $48,000 will grow to $1.7 million when they reach age 65.
- Pay yourself first: A minimum goal should be to save 10 percent of every dollar earned, from their first lawn mowing job on. Parents should insist on saving before spending.
- Save tax efficiently: Ideally, you should save in a Roth IRA account at the beginning of your career. When you reach your peak earnings (usually around age 40), switch to a tax-deferred account like a 401(k).
- Parents, control your spending: Most parents today spend too much on gift giving. Start by taking half of what you have been spending on gifts (toys, games, etc.) and invest it in a mutual fund for your child.
- Gift registry: It is fairly common to get invited to a birthday or wedding and find the honoree has set up a gift registry at a store. Why not do the same thing with a mutual fund for your child? Encourage friends and relatives to contribute to the mutual fund account you've started instead of buying gifts for birthdays and holidays.
- The habit is more important than the amount: Contributing small amounts on a regular basis are a better strategy than waiting to accumulate a larger sum. Get in the habit of saving something regularly.
- Let the Government help: the child tax credit is still $1,000 per child until they reach age 17. (Under current law the credit will be reduced after December 31, 2012.) Discipline yourself to save the credit when it is returned to you as a refund.
Finally, make sure your finances are in order to assure you don't become a burden to your children in your later years. Many adults find themselves in a position where they want to provide help to the aging parents, but cannot because they are still working themselves. They turn to Home Care Aides who provide at-home, non-medical assistance to seniors such as helping with personal hygiene, laundry, cooking and transportation. Home Care Aides will customize their services to meet your budget. Typically they visit a home several times a week for visits lasting from 2–8 hours. The national average is $19 per hour.
At the other end of the spectrum is Skilled Nursing Residences which offer 24/7 care by licensed health professionals including all housekeeping, medical and social needs. The average amount paid in 2009 for a private room was $219 per day. Depending on the area you live in, the cost can range from $132 to $584 per day. About 70% of people over age 65 need long term care during their lifetime.
Expenses of this magnitude can quickly deplete savings for the parents and children. This is why long term care (LTC) insurance should become part of the financial plan when you reach age 55. There are many insurance companies which offer LTC policies, so it's wise to shop around to find the best possible coverage. Average premiums can range from several hundred to several thousand dollars per year.
It doesn't take a lot to give your kids long-term security when you start early. Let the magic of compounded interest do most of the heavy lifting. Make sure you've taken care of your own finances, so you do'’t become a burden to them in your senior years. Start early and save often.
Avoidable Benefits Mistakes, Personal Sacrifices Common Among Workers
Aflac Study Shows Lack of Understanding Impacts Sound Benefits Decisions
COLUMBUS, Ga., Sept. 13, 2011 - As fourth-quarter open enrollment period rapidly approaches, new research shows more than three-quarters (76 percent) of American workers1 who make decisions about benefits coverage during open enrollment admit to making mistakes about their benefits decisions. In addition, 42 percent of workers say they have wasted money each year because of mistakes they made with their insurance benefits and more than four-in-five of them say they are at least somewhat concerned about the possibility of an unexpected medical expense, considering their current financial situation.
These new findings are part of the Open Enrollment Survey of the Aflac WorkForces Report, an online survey of 2,220 U.S. adults ages 18+, of whom 980 were employed full/part time and responsible for insurance decisions, conducted in August 2011 by Harris Interactive on behalf of Aflac, the No. 1 provider of supplemental and guaranteed-renewable insurance in the U.S. Among other key discoveries, the study uncovers the primary ways Americans make costly mistakes in benefits decisions and reveals the impact Americans' concerns about unanticipated out-of-pocket expenses are having on their lifestyles.
"Far too many American workers are making avoidable mistakes in benefits coverage decisions - from not meeting deductible amounts to contributing too little to Flexible Spending Accounts - and, as a result of their lack of understanding or confusion, they often pay a price in multiple ways," said Audrey Tillman, executive vice president of Corporate Services at Aflac.
For example, in terms of cost-bearing mistakes and their consequences, the most common include not electing available benefit coverage such as vision, dental or voluntary, choosing the wrong level of coverage and putting too little in flexible spending account. As a result of paying unexpected out-of-pocket medical costs, 65 percent of workers have had to make sacrifices, including cutting back on social activities (40 percent), luxury items (34 percent), purchasing gifts (29 percent) and taking a vacation (28 percent). Others admitted to working more hours (21 percent), creating a strict household budget (21 percent), and increasing use of credit cards or line of credit (19 percent).
Seventy-four percent of workers say that when thinking about their choices for major medical insurance coverage, they only sometimes or rarely or never understand everything that is covered by their policy - while slightly more than half (59 percent) of workers who choose the same benefits year after year say they only sometimes or rarely or never have a full understanding of the changes in the policies each year. Although most do not fully understand their health care insurance policies, workers are worried about unexpected medical expenses. In fact, 83 percent of workers say they are at least somewhat concerned about the possibility of an unexpected medical expense, with 30 percent saying they are extremely/very concerned, considering their current financial situation.
"While workers certainly need to invest more time in making better educated decisions, employers can help by understanding workers’ most common mistakes, explaining their impact, and offering best-practice solutions," said Tillman.
To see this year's inaugural study results and learn more about how individuals are vulnerable because of inadequate benefits choices, and how they can better protect themselves and their families against the unknown, visit AflacWorkForcesReport.com.
About the Aflac WorkForces Report
The Aflac WorkForces Report is an annual study analyzing the forces impacting the trends, attitudes, and use of employee benefits. Surveying both American workers and business decision makers, the Aflac WorkForces Report reconciles the perceptions and realities of benefits in the workplace. The insights aim to help businesses make informed decisions about benefits to better protect employees and their bottom line.
Methodology
This survey was conducted online within the United States by Harris Interactive on behalf of Aflac from August 11-15, 2011, among 2,220 adults ages 18 and older, of whom 980 were employed full/part time and responsible for insurance decisions. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables, please contact Aflac Media Relations at mediarelations@aflac.com or 706.243.5543.
About Aflac
When a policyholder gets sick or hurt, Aflac pays cash benefits fast. For more than 55 years, Aflac insurance policies have helped provide a safety net and have given policyholders the opportunity to focus on recovery, not financial stress. In the United States, Aflac is the number one provider of guaranteed-renewable insurance. In Japan, Aflac is the number one insurance company in terms of individual insurance policies in force. Aflac insurance products provide protection to more than 50 million people worldwide. For five consecutive years, Aflac has been recognized by Ethisphere Magazine as one of the World’s Most Ethical Companies and by Forbes magazine as one of America's Best-Managed Companies in the Insurance category. In 2011, Fortune magazine recognized Aflac as one of the 100 Best Companies to Work For in America for the 13th consecutive year. Also, Fortune magazine has included Aflac on its list of Most Admired Companies 10 times. Aflac Incorporated is a Fortune 500 company listed on the New York Stock Exchange under the symbol AFL. To find out more about Aflac, visit aflac.com or aflacenespanol.com.
New 401(k) Regulation sheds light for Plan Sponsors, Exposes Vendors' Fees
by Connie Certusi
Ms. Certusi is SVP & General Manager for Small Business Solutions of Sage Peachtree
Historically, the retirement industry hasn't been required to publish all fees and expenses associated with 401(k) products. That's about to change.
The Department of Labor (DOL) noticed that the majority of 401(k) plan sponsors are in the dark regarding the fees they're paying. To add insult to injury, most are under the impression that their plan is free. The DOL has issued a new regulation that will take effect in April and the end of May 2012 for plan sponsors and their employees, respectively, requiring the disclosure of fees and expenses associated with 401(k) plans. The regulation will impact not only plan sponsors, but the whole of the retirement industry.
401(k) plan administrators, brokerage houses, investment firms, etc. will now have to create disclosures following user-friendly, uniform guidelines. When pooled collectively by the account holder, these disclosures will tell a clear story of both direct and indirect fees and expenses.
This is a monumental decision. In fact, some might say it's a long time coming. The disclosure requirement has sent 401(k) vendors scrambling to comply. Some vendors are opposed to this regulation as it will expose the high, even unreasonable, fees associated with their products and services. Plan sponsors, in turn, should be concerned because starting in 2012 they'll have to share those expenses with employees and justify their plan choices. Plan sponsors who don't plan ahead and secure reasonable-fee solutions may be facing some awkward, difficult conversations.
Plan sponsors can avoid these types of conversations by requesting a written explanation of their fees from their current provider. They should be prepared to ask some hard questions. Here are a few questions to get you started:
- What are the total all in fees and expenses applicable to my companies' 401(k) plan?
- What have you accomplished in our plan for the compensation you were paid?
- Does this total expense include any indirect compensation received by your firm for selling/administering my plan? If not, why aren't they included?
- How much is the indirect compensation and what is the frequency?
- Why wasn't I made aware of this fee?
- How much has this cost our employees over the life of our relationship?
It's important they hold their ground and ask for clear explanations of what each fee is for and to whom it is paid.
Making Lemonade in a Sour Market
Voluntary benefits like critical illness and accident coverage offer your clients a silver lining
by David Gittelman
Mr. Gittelman is director of marketing for Reliance Standard Life Insurance Company, a group benefits insurance carrier based in Philadelphia. He can be reached at david.gittelman@rsli.com
With the onset of benefits enrollment season, American workers are faced with more uncertainty than ever before. Health care costs continue to rise each year and health insurance plan designs are increasingly shifting to the high-deductible model. (Participation in HSAs is at an all-time high.) The exact outcome of health care reform is still being written, the water further muddied by political posturing. Despite record lifestyle spending and an increasing share of mind for wellness, Americans are becoming less healthy and chronic diseases like obesity, diabetes and others are on the rise.
While many disagree on the remedy, almost everyone can see the problem with clarity: the old economic model - and maybe the entire agent-broker value proposition - is becoming steadily less relevant and in need of reengineering.
Enter salvation in its least likely form: Tragedy.
The case for Critical Illness and Accident coverages
OK, that's a little bit dramatic, but it's also true.
The chances of being diagnosed with a critical illness or experiencing an accident are steadily increasing, as are survival rates. It's the ultimate good news/bad news scenario, with the bad news showing up as growing financial challenges for American families. Although health insurance premiums have consistently risen over the years, they have not kept pace with the true cost of care delivery and treatment.
Statistics show that in 2009, 1.26 million people in the United States experienced a coronary heart attack and each year 800,000 people suffer a new or recurrent stroke. The current one-year survival rate of a heart attack victim increased to 67 percent up nearly 50 percent since 1950. In addition, the one-year survival rate for a stroke victim tripled from 24 percent in 1950 to 77 percent today.
The costs associated with treating - and in more cases surviving - a critical illness or catastrophic accident can be staggering, making it difficult for individuals to remain financially stable and successfully re-enter the job market. This leaves families with mounting costs, potentially driving them into bankruptcy.
Long a staple of worksite carriers, voluntary critical illness and accident insurance products are finding increasing popularity in today's marketplace among the usual suspects, as well as a new generation of benefits brokers and newly-empowered employees. The core value proposition - preparing financially for the likely event of a critical illness or accident-related injury - has not changed. But new considerations, including how much of the eventual treatment costs are borne by the employee and how broker medical commissions are devolving, are increasing focus on these products by both individual and group carriers. At the same time, the increasing share of spend by employees necessitates more product diversity, greater choice and the need for better education about how to build an affordable, appropriate plan.
An unintended byproduct of superior medical care has been a widening financial gap surrounding treatment. Critical illness and accident insurance help narrow the gap by providing supplemental cash benefits, payable to the insured, for covered illnesses and accidental injuries that can either be devastating or chronic. In a market where employees are taking responsibility for more of their benefits decision-making and spending, critical illness and accident insurance are important, affordable and proven solutions to the evolving puzzle of prevention, care, treatment and financial recovery.
Voluntary critical illness coverage provides a fixed, lump-sum payment upon diagnosis of a critical illness which can include cancer, heart attack, stroke, paralysis and more. The benefit payment is made directly to the insured and can be used for any purpose -not just the traditional medical out-of-pockets like deductibles and medical co-payments, but literally anything: child care costs, travel expenses, even the cost of having loved ones come to stay and share in caregiving.
Voluntary accident coverage provides a range of fixed, lump sum benefits for injuries resulting from an accident â-ranging from fractures, burns and dislocations to more severe injuries and treatments. Here, too, payment is made directly to the insured and can be used for any purpose, from prescription costs to McDonald's for the kids when you can't cook.
Unlike many of the conversations you inevitably have during an enrollment situation, these are benefits that are easy to understand: Everyone has had an accident that became a trial for the family; everyone knows someone living with cancer. With the right communication approach and an accessible, affordable portfolio of products to offer, this becomes a common-sense sale seldom seen in the supplemental/ancillary market. In an era of uncertainty and shrinking medical commissions, we need all the common-sense solutions we can get.
Finding the right products
These benefit products exist side-by-side as both individual/worksite coverages that literally invented the market, and group products that offer an 'easy in.' Competition is a good thing: and the result is that there are multiple solutions for every possible need (particularly when so many carriers offer or are planning to offer their stripe of these coverages). When considering what's going to work best for your clients, there are broad differences to keep in mind between the two models, including commission, underwriting, pricing, claims and portability.
Individual/worksite products are medically underwritten and are typically more expensive for the employee than group products. They most often use issue-age pricing, meaning the premium an individual pays on day one is the same as a year later, five years later, 20 years later. In comparison, most group policies utilize attained age pricing, meaning the policy rate changes as the policyholder gets older and crosses from one age band to the next. Depending on the age makeup of your client's work force, the group platform could offer greater accessibility and affordability early on when the individual first enrolls. If the average life cycle of a group policy is five years, the employee could save money on the paid premium during that time through attained age pricing.
Unlike worksite plans that require employees to go through a more involved medical underwriting process, group critical illness and accident products are available to employees with minimal underwriting, typically with guaranteed issue benefit options. The reduction of underwriting requirements associated with group benefits reduces the intrusiveness of the application process and can in turn lead to ease of adoption. This is important, because the enrollment model for group products is typically less intrusive as well, relying on group meetings and swift action to capitalize on benefit opportunities.
Portability is also an important factor to take into consideration: In the worksite model, the policies are individual, and stay with the policyholder as long as premium is paid. In the group model, the employer is the policyholder, and portability can become a more involved and potentially expensive proposition for the enrolled individual who leaves his employer.
It's important to note that the landscape - which was once primarily individual in nature and is now very two-sided, with group voluntary benefits making up virtually half of new sales - is becoming homogenized. Group carriers are introducing benefits with distinctly worksite plan features in hopes of capturing the interest of individuals, benefits administrators and brokers alike.
Dollars and sense
In the dynamic era of health care reform, with increasing adoption of high deductible health plans, brokers are under renewed pressure to think about replacing at-risk medical commissions. Group benefits programs traditionally pay flat commissions, while individual/worksite programs still often pay heaped or 'high-low' commissions. These are commissions which are front-loaded during the first year with a far smaller trailer in renewal years. Many brokers who sell individual products end up using a portion of their first year commissions to invest in blue-chip enrollment support, while most group carriers build in internal enrollment teams, resources and platforms to aid in enrolling a new case. Here, too, there is evidence of a mixing of philosophies, with an increasing number of carriers on both sides of the fence striving to offer flexible commission structures.
It's clear that voluntary coverages like critical illness and accident have a place in today's volatile marketplace. Not only do they have a common sense appeal to individuals bracing for the next mishap that could put their family at financial risk, but they can also round out a broker's benefits portfolio, leading to better options and outcomes for clients. With all of the product and support options available, the projected growth of these two products is no accident among successful benefits brokers.