Products May 21, 2020

Investment Product and Service Launches

American Century releases online TDF tool; Securian adds personalized managed accounts to solutions; BNY Mellon launches Investor Solutions RIA; and more.

Reported by

American Century Investments Releases Online TDF Tool

American Century Investments has created a new online tool to help fiduciaries select target-date fund (TDF) options.

“Target-Date Blueprint” is an online solution that organizes the U.S. Department of Labor (DOL) Tips for ERISA [Employee Retirement Income Security Act] Plan Fiduciaries into three steps. American Century says the tool can serve as an important component of a prudent selection process for TDFs that are used as the plan’s qualified default investment alternative (QDIA), and seek to maintain their safe harbor status. It also may reduce the potential for litigation.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

The Target-Date Blueprint was built in response to adviser demand, according to Glenn Dial, American Century senior retirement strategist. “We learned that, while the DOL Tips were helpful, many clients wanted the tips organized into a framework that enabled advisers to document and implement them into a single document,” he says. “Additionally, we incorporated the tips into a forward-looking optimization process to help advisers determine which target-date funds may be suitable for a particular plan.”

“The Target Date Blueprint tool developed by American Century Investments helps plan fiduciaries fill a potential gap in the documentation of their prudent process,” says Bradford Campbell, partner at Faegre Drinker Biddle & Reath LLP and a former assistant secretary of Labor for the Department of Labor’s Employee Benefits Security Administration (EBSA). “The DOL guidance explains what the department thinks is prudent for plan fiduciaries to consider in selecting and monitoring TDFs—clearly documenting that plan fiduciaries are following the guidance that better prepares the plan for challenges, such as DOL investigations or private litigation.”

Dimensional Fund Advisors Announces Multiple Wealth Model Series

Dimensional Fund Advisors will launch its five series of Wealth Models, named Core, Core Plus, Tax-Sensitive, Sustainability and Social Wealth Models.

Each set of models provides six combinations of equity and fixed income, ranging from 100% equity to 100% fixed income in 20% increments. The new Wealth Models were designed to address a wide range of wealth goals, ranging from aggressive wealth growth to preservation of capital and purchasing power. All are available on Dimensional’s client website.

“The new Wealth Models reflect our belief system and our value-added approach to portfolio design and management—one that is holistic, consistent and based on rigorous theoretical and empirical research,” says Savina Rizova, global head of research. “We will update the allocations as needed in alignment with new research, new investment solutions, and changes in the investment opportunity set, while staying true to Dimensional Investing.”

Dimensional Core Wealth Models use Dimensional’s core equity strategies, which have a moderate focus on securities with higher expected returns. Dimensional Core Plus Wealth Models add component equity strategies and apply a stronger emphasis on securities with higher expected returns. Dimensional Tax-Sensitive Wealth Models seek to improve after-tax returns using various tax-advantaged strategies.

Dimensional Sustainability Wealth Models include funds that generally seek to reduce exposure to firms with less sustainable business practices and focus on key environmental considerations, such as greenhouse gas emissions and potential emissions from fossil fuel reserves. Dimensional Social Wealth Models include funds that generally seek to reduce exposure to firms that are involved in controversial activities, such as nuclear weapons, tobacco, alcohol and gambling.

The Wealth Models are not proposed as optimized solutions and are not tailored for specific individual investors. Professionals can apply them in their current form or customize to meet an array of individual needs and preferences.

Bloomberg Announces Details on US Multi-Asset Indices

Bloomberg has announced its US Multi-Asset Indices, comprised of Bloomberg indices across asset classes with each index constructed as a composite of at least one fixed income and one equity index.

The suite is designed to address investor demand for a centralized multi-asset index suite, with products that can be benchmarked.

“We’ve seen the growing appetite for multi-asset offerings in the market and wanted to provide investors with a thoughtful and innovative solution, utilizing Bloomberg’s existing index offerings,” says Dave Gedeon, global head of Equity and Strategy Indices at Bloomberg. “By incorporating our unique internal data, pricing, analytics, distribution and research offerings, the Bloomberg US Multi-Asset Indices provide clients with a new benchmark family to meet their evolving investment needs.”

Building on Bloomberg’s single asset indices as the foundation, the suite of 10 indices features fixed, market value and risk parity weighting plans. According to Bloomberg, these plans include fixed weight indices that are rebalanced to respective target weights; market value weights determined based on the published market value for the underlying indices on the weight determination date; and risk parity indices weights determined with the aim of providing equal risk exposure to the two underlying indices.

Additionally, Bloomberg says the US Multi-Asset Indices rebalances monthly on the first business day each month.

Securian Financial Adds Personalized Managed Accounts to Solutions

Securian Financial has introduced Target Pro Portfolios to its retirement plan investment solutions.

Target Pro Portfolios are managed accounts that leverage employee data to create personalized investment allocations. The tool uses data already provided, and employees who want to provide additional details can do so to further personalize their allocation.

“Typical managed accounts require employees to take action, and many times that just does not happen, so we’ve taken a different path,” says Steve Chappell, Securian Financial vice president for retirement solutions distribution. “We believe there’s an evolution happening where individuals of all ages value a strategy based on their unique circumstances. The no effort, reasonable cost approach of Target Pro Portfolios makes it a feasible solution to meet those new expectations.”

Stadion Money Management creates the asset allocation formula for participants using Target Pro Portfolios. Financial professionals leveraging the portfolios can choose the degree of fiduciary involvement best suited to their clients, practice and value proposition. All aspects of portfolio management are integrated with Securian Financial’s recordkeeping system.

BNY Mellon Launches Investor Solutions RIA

BNY Mellon Investment Management announced the launch of BNY Mellon Investor Solutions, a Securities and Exchange Commission (SEC)-registered investment adviser (RIA) that offers comprehensive portfolio management and investment advisory services for investors worldwide seeking outsourced investment management.

The new group combines an open-architecture approach with the proprietary investment capabilities of BNY Mellon’s eight specialist investment firms, alongside advisory services from BNY Mellon Wealth Management, and the custodial and servicing capabilities from BNY Mellon Asset Servicing. It provides investment advisory, discretionary portfolio management, analytical and infrastructure services to support client operating and governance requirements, principally to endowments and foundations, retirement plans, family offices, private wealth and intermediary RIAs.

BNY Mellon Investor Solutions will offer the following services:

Outsourced Chief Investment Officer (OCIO) Services

  • Asset allocation and portfolio construction advice;
  • Manager research and selection;
  • Investment analytics;
  • Customized investment strategies; and
  • Access to trust and custody services.

Customized Portfolio Solutions

  • Model portfolios;
  • Multi-asset strategies;
  • Multi-manager strategies;
  • Overlay programs; and
  • Alternatives program.
Reporting to Catherine Keating, a member of BNY Mellon’s executive committee and CEO of BNY Mellon Wealth Management, BNY Mellon Investor Solutions is comprised of nearly 70 investment professionals led by Jamie Lewin, former head of product strategy and performance management for BNY Mellon Investment Management.
Data and Research May 21, 2020

Self-Funded Employers Expected to See Lower Health Benefit Costs

A potential for changing experiences and a plethora of variables make preparing health benefit plans for next year a difficult task.

Reported by

In an update to an analysis conducted in April that projected employer health benefit costs for employers that are not fully insured could rise as much as 7% due to COVID-19-related claims, Willis Towers Watson now says self-funded employers could see costs reduced by as much as 4%.

Trevis Parson, chief actuary at Willis Towers Watson in Philadelphia, explains there are several reasons for this. “We have a situation here where we’re trying to make the best estimate we can based on the most recent utilization. We noticed the infection levels modeled previously ranged up to 50%. Now we see we are not going to reach 50% in this wave; we may see 15% of the population in some hot spots like New York City,” he says. “We lowered our assumed infection levels to anywhere from 1 to 20% thinking that would cover most, if not all, geographies in country. When we did that, of course, the cost increase wasn’t as great.”

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

The deferral of non-essential care is also a factor in the new cost estimates. Parson notes that the previous analysis included a modest level of care deferral, but he says experience is showing it is actually more significant. “There are no cosmetic surgeries, knee surgeries, regular office visits and maybe even some routine cancer care. Medical providers have been redirected to do other things, and many people are not comfortable going into a care setting for fear of getting sick,” he explains.

The Willis Towers Watson analysis used low, medium and high care deferral assumptions, which reduced estimated costs further.

When lower infection levels and deferral of care are combined, “updated estimates basically say, if an employer is in an area like New York City where the infection level is higher, and if deferral of care is assumed to be low, the employer may still see a 3 or 4% increase in costs. However, if an employer is in Omaha, where there is a low infection level and people are deferring care, which is what we’re seeing, the employer may see a reduction in costs of 3% to 4%,” Parson says.

Christopher Nadeau, regional executive vice president at Gallagher’s Benefits and HR Consulting Division in Boston, echoes many of these observations when explaining that Gallagher is also predicting a decrease in health benefit costs for self-funded employers.

“When this first started to occur, our clients had anxiety about the impact on their medical spend this year and next. They were seeing in the media a prediction of infection rates between 30% and 50%,” he says. Gallagher’s model uses a range of infection rates from 0.5% to 10%. Nadeau says Gallagher feels comfortable that this range is based on updated data.

“We threw in costs of COVID-19 testing and treatments. Employers had anxiety about waiving employee cost and taking it on their own, but we didn’t think it would be a significant piece of overall costs,” Nadeau adds. “The third thing we looked at was the impact of non-COVID claims. They have all but disappeared, which is a pretty significant piece of projections for clients.” He points out that a decrease in non-COVID claims is occurring not only because people are deferring care but also because of lifestyle changes. “No one is popping his knees playing baseball, for example,” he says.

Assuming stay-at-home requirements remain in place for two to three months and a continued deferral of non-essential care, Gallagher predicts a 10% reduction in costs for March and a 10% to 15% reduction for April, May and June.

Nadeau says Gallagher has also been tracking claims weekly. Looking at about 350,000 employees of its clients, through April, there has been a reduction of about 22% overall in medical costs. He adds that overall medical spending—not industry, region or demographic specific—reduced about 17.5% from the beginning of April through the first two weeks of May. Just as an aside, he notes that dental claims were down 75% in the month of April.

So, could the effects of the COVID-19 pandemic on health benefit costs drive them down below the normal trend? Employers had projected a 5% cost increase this year in the Willis Towers Watson Best Practices in Health Care Employer Survey. “If the trend is 5% and the reduction in costs because of COVID-19 is 5%, employers may see flat costs,” Parson says. “If the reduction is greater, it could be the first time costs decline year-over-year in at least 70 years. So this is very meaningful and rare when viewed in that context.”

Looking Ahead

Nadeau notes that while Gallagher’s modeling showed employers didn’t overreact to what they saw in the media, there are so many variables that affect what they will see this year. For example, knowing now that the disease skews higher in older people, men and people with certain underlying conditions, depending on a company’s employee demographics, it may see a higher infection rate among employees, resulting in higher costs.

Parson notes that health officials are also predicting a second wave of COVID-19 cases, either as states pull back on restrictions or perhaps in the fall. Whether this happens and how bad it is if it does happen will affect costs for employers this year.

Both Nadeau and Parson reflect on the likelihood of deferred care returning, pointing out that major carriers have looked at what happened after natural disasters and found a 40% to 60% return to care. Parson says the effect on employer health benefit costs will also depend on the timing of the return to care.

Typically, some self-funded employers would already be done developing what their plans will look like in 2021 and the rest would be working on it right now, Parson says. He expects this year, they will be working on it heavily in June and July. “With all the uncertainty, it is extremely difficult this year. Add to that some employers’ financial status is not good so they have to consider other business concerns when determining how much they can spend,” Parson says. “No doubt what will end up happening is employers and consultants will be making bigger guesses. We are unlikely to get information needed in time to base next year on this year’s experience, so we are likely to look back at pre-COVID experiences.”

Nadeau says employers should have trusted consultants that can cull through the numbers and whose interpretations employers trust.

Willis Towers Watson’s next paper will talk about 2021 scenarios, according to Parson. And Nadeau says Gallagher’s next one will be about how to approach renewals next year.

«