September 16, 2014 (PLANSPONSOR.com) - As part of an ongoing effort to reduce complexity and costs in its investment program, the California Public Employees’ (CaIPERS), the largest public pension fund in the U.S., will eliminate its hedge fund program.
According to CaIPERS Interim Chief Investment Officer (CIO), “Hedge funds are certainly a viable strategy for some, but at the end of the day, when judged against their complexity, cost, and the lack of ability to scale at CaIPERS’ size, the ARS [Absolute Return Strategies] program [CaIPERS’ internal name for hedge funds] is no longer warranted.”
The staff recommendation, supported by CaIPERS’ investment committee, will exit 24 hedge funds and six hedge fund-of-funds valued at approximately $4 billion.
Last September, the CaIPERS board adopted a set of 10 “Investment Beliefs” to inform investment decisionmaking processes such as this one. Investment Belief 7 says, “CalPERS will take a risk only where we have a strong belief we will be rewarded for it.” Belief 8 says, “Costs matter and need to be effectively managed.”
The decision to exit the funds was not based on the performance of the program. CaIPERS will spend the next year strategically exiting current investments in a manner that best serves the interests of the portfolio.
September 16, 2014 (PLANSPONSOR.com) - Recently we sat down with Jillian, a new college graduate just launching her career and planning on starting a family, who wanted our team to assist her in establishing a budget.
Jillian
had the idea that we would tell her to stop eating out, stop using her credit
card, and begin turning the lights off in every room of her house when she
walked out the door. Much to her surprise, we focused our initial efforts on
reviewing the way that Jillian was spending her hard earned dollars at work. In
other words, we wanted to take an in-depth look at the insurance, retirement
and supplemental benefit offerings available through her employer to help make
sure she was using her dollars wisely. As we explained to her, being a good
steward of her discretionary income is important, but we often find that
employees tend to waste money on the wrong benefits or on benefits they don’t
even need.
From
life, identity theft, health, disability, cancer and critical illness insurance
to divorce, pet and juvenile life insurance, many employees are bombarded with
choices and the chance to purchase too much insurance. We find that younger
employees tend to over insure themselves at a time when their risks are low
whereas older clients cannot afford adequate coverage at times when they need
it the most. This idea, in combination with the fact that Americans are not
saving enough and are underfunded for retirement, creates a recipe for
disaster. As an employer, you have an opportunity to enhance employee awareness
about retirement readiness by initiating a discussion of how to most
effectively utilize the dollars employees spend on appropriate insurance and
redirect any savings toward their retirement nest egg.
Assess
Long Term Goals and Immediate Needs
When
faced with a limited amount of money to disperse between benefits, we would
encourage your participants to assess their short, intermediate, and long-term
needs. Although retirement probably does not make the list as an immediate
need, we would argue that employees should take advantage of compounding
interest and the time value of money concept. At the very least, they should
defer enough of their paycheck to benefit from the company match and,
ultimately, set a goal to defer at least 10% of their income. The sooner they
start, the greater their chances of retirement success. This may mean choosing
a less expensive, less benefit rich insurance option in the beginning of the
employee’s career when they are less likely to need insurance benefits and
delaying the purchase of long-term care insurance and ancillary products like
cancer insurance until later in life.
In Jillian’s case, we
discussed her immediate need for vision insurance based on the fact that she
only wears glasses while driving at night and does not require a new pair every
year. We compared the cost of the vision insurance to the cost of an annual eye
exam and biannual pair of glasses and determined it was a better use of her
money to pay for the exam and glasses out of pocket and save the amount that
she was spending on the insurance in her 401(k) account.
Weigh
the Options
It
can be tempting to enroll in the most comprehensive health insurance plan for
fear of the medical unknown, and, it is true that roughly half the bankruptcies
in the United States are caused by illness and medical bills. However, before
deciding on an option, your employees need to take a good, long look at their
individual medical history and needs and the plan design options that best
satisfy those needs. For instance, does
your health plan offer different tiers of coverage based on family status? If so, it may be more cost effective for an
employee to enroll as a single individual and allow their spouse to enroll in
coverage at his or her employer.
Does
your plan offer a high deductible option paired with a health savings account
(HSA)? An HSA works in conjunction with an insurance policy that has a high
deductible, but low monthly premiums. The HSA allows employees to deposit money
that they save each month in premiums into a pre-tax account where it grows tax-deferred
and is accessible to pay for medical expenses as needed. The real bonus to an
HSA is that, once you reach age 65, any money that you did not spend can be
used for anything you want, including to help fund retirement.
It
may also be in the company’s and the employee's best interest to offer a flexible
spending account (FSA). An FSA allows employees to determine an annual amount
to contribute to the account with pre-tax dollars. The money in the FSA can
then be used to pay for qualifying medical expenses.
Shop
Around
Arguably
one of the biggest changes set forth by the Patient Protection and Affordable
Care Act is the Health Insurance Marketplace (www.healthcare.gov). Even if you are
offering your employees a health insurance plan that satisfies the federal
requirements for coverage and affordability, the marketplace may still be a
good reference for employees to assess the best plan for them. Additionally,
even employees with prescription drug coverage should be encouraged to compare
costs, especially if they have a condition that requires regular medication. Encourage
your employees to keep costs low by comparing prices at competing retailers,
utilizing potentially less expensive mail-order prescription services, and
asking for generic medicines when available and appropriate. Finally, employees
should take an in depth look at the true cost of the insurance offered and
whether the services justify that expense. For example, if your employee wears
glasses, but does not need a new pair every year, it may make more sense to opt
out of vision coverage in lieu of paying for his annual eye exam out of
pocket.
After our discussion,
Jillian realized that the best use of her hard earned dollars for her current
situation would be to maximize her contributions to her company's 401(k) while
choosing an insurance option that covered her needs and did not over insure
what she did not need. Jillian feels this strategy will help her better prepare
for retirement, and her employer is also grateful to have an employee who is a
good steward of her money now, which will lead to a better employee in the
future.
Trent A. Grinkmeyer,
CRPC, Valerie R. Leonard, AIF, and Jamie Kertis, QKA, AIF
Trent Grinkmeyer,
Valerie Leonard, and Jamie Kertis are Registered Representatives and Investment
Adviser Representatives with/and offer securities and advisory services through
Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment
Adviser. Fixed insurance products and services offered through Grinkmeyer Leonard
Financial or CES Insurance Agency. Grinkmeyer Leonard Financial, 1950
Stonegate Drive, Suite 275, Birmingham, AL 35242, (205) 970-9088.
This feature is to provide general information
only, does not constitute legal or tax advice, and cannot be used or
substituted for legal or tax advice. Any opinions of the authors do not
necessarily reflect the stance of Asset International or its affiliates. The
persons portrayed in this example are fictional. This material does not
constitued a recommendation as to the suitability of any investment for any
person or persons having circumstances similar to those portrayed, and a
financial adviser should be consulted.