Benefits September 11, 2015

Employer Tactics Delay ACA Cost Impact

Many employers, particularly small to mid-size, are still delaying the effects of the ACA by delaying renewal dates.
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Employers in states that allowed “grandmothering”—the extension of non-Patient Protection and Affordable Care Act (ACA)-compliant plans—are now seeing proposed health plan rate increases of 11%, on average, according to the 2015 United Benefit Advisors Health Plan Survey.

Many employers, particularly small to mid-size, are still delaying the effects of the ACA by delaying renewal dates. Seventy-three percent of plans in the survey have a renewal date on or after December 1, 65.4% of which were small businesses in the fewer than 100 employee market. Employers in the less than 50 employee market saw a 2.1% increase in renewals after December 1, 2015, compared to 2014. On average, employers this year saw only a modest 2.4% increase in annual health plan cost per employee.

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“These delay tactics continue a trend of employers avoiding becoming ACA-compliant, but relief runs out starting next year and permanently ends in late 2017,” warns Carol Taylor, chairwoman of the UBA Client Compliance Solutions Committee and a benefits advisor with D & S Agency, a Virginia-based insurance firm and UBA Partner. “Small employers, in particular, need to stay aware of the costs under a compliant plan heading into 2018 and the potential for exceeding the thresholds for the Cadillac Tax.”                                                      

According to the survey, the average annual health plan cost per employee for all plans in 2015 is $9,736, a 2.4% increase from the previous year; employees picked up $3,333 of that cost, while employers covering the balance of $6,403.

NEXT: Employer health plan offerings

Among all employers surveyed, more than half (53.7%) offer only one health plan choice to employees, and 28.7% offer two choices. As far as plan choices, preferred provider organizations (PPOs) continue to dominate the market (46.8% of plans offered, and 54.8% of employees enrolled), and health maintenance organization (HMO) plans continue to decrease, as they've done since 2012 when they accounted for 19.1% of the market but now account for only 17.3%. Consumer-directed health plans (CDHPs) continue to show the greatest increase in growth, up 10% from 2012 through 2015.

The average premium for all employer-sponsored plans was $509 for single coverage and $1,211 for family coverage. One-fifth (20.6%) of all plans required no employee contribution for single coverage (a 5.1% decrease since 2014), and 7.3% required no contribution for family coverage (a 3.9% decrease since 2014).               

For plans requiring contributions, employees contributed an average of $140 for single coverage and $540 for family coverage, which is only a slight increase from 2014 results—3.7% and 5.5%, respectively.

Most employers (72.5%) define full-time work as 30 hours per week, and 7.6% define it as 40 hours per week. Only 9.9% of employers require fewer than 30 hours per week.

United Benefit Advisors’ 2015 UBA Health Plan Survey report database contains the validated responses of 18,186 health plans, sponsored by 10,804 employers, who cumulatively employ more than two million employees and more than five million total lives. An executive summary of the survey report may be pre-ordered here.

Investing September 11, 2015

Fiduciary Duty and the ESG Catch 22

More than anything, ESG investment advocates face an image problem.
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Proponents of environmental, social and governance (ESG) investing say their critics have it all wrong.

Opponents of the philosophy have strived to define it as a privation—as the sacrifice of lucrative energy and oil company stocks because of moral discomfort. A rational ethical scheme, perhaps, but not a system that is financially sound.

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For a while the criticism made some sense. The earliest generations of ESG portfolios took the form of standard equity indexes with energy and other higher-waste sectors and stocks cut out. It’s a practice known as “negative stock screening,” and today much of the opposition to ESG is still caught up in this initial association with stock screening, including the Department of Labor’s stance that ESG factors can be considered as nothing more than a potential tie-breaker by qualified retirement plan fiduciaries.

“Frankly that outlook is completely outdated,” says David Richardson, managing director and head of institutional business development at Impax Asset Management. As the name suggests, Richardson’s firm focuses on ESG investing portfolios and, as he puts it, “delivering superior performance by taking ESG factors seriously.”

The work involves much more than negative stock screens, he notes, and includes deep analysis of how specific companies and sectors use resources and process waste—as well as how they stand to gain or lose from carbon pollution, recourse scarcity and climate change. At Impax, portfolios are built not to make an ethical stance, but to take advantage of the superior growth demonstrated by companies that do business in an ethical and sustainable way. 

“Put simply, today’s ESG is a sophisticated and potentially very compelling investing principle going far beyond stock screening,” he adds. “It’s not just Impax saying this. There is yet another United Nations report circulating right now arguing the same thing, urging all of us to start taking ESG seriously as a means to protect our finical futures.”

One of the most concise arguments Impax presents against ESG opponents is to observe that negative stock screens are, in some respects, universal in the investing marketplace. All funds, from indexed large-cap U.S. equity to active liquid alternatives, carry philosophies that prevent investments in certain stocks or sectors.  

NEXT: A better understanding of ESG

“Large-cap stock funds screen out small-cap stocks, for example, but it’s not assumed that this ‘negative’ screening is a problem,” Richardson tells PLANSPONSOR. “The screening is simply how one applies the underlying investment philosophy. It’s fundamental to portfolio construction, to choose some stocks and avoid others, but for some reason, when it comes to using ESG principles to choose which funds and stocks to invest in, that’s seen as a fiduciary problem.”

Richardson says it amounts to a Catch 22, a kind of paradox standing in opposition to firms like his.

“It’s arbitrary and it is political, to a large extent, the opposition to ESG,” Richardson explains. “Opponents of ESG argue the very process of constructing a portfolio and an investment philosophy is jeopardizing the performance of the philosophy. Yet they accept precisely the same thing in more traditionally named asset classes. They have to accept it, because it’s the way you build a fund.”

Like most change in the retirement planning space, greater acceptance of ESG by Employee Retirement Income Security Act (ERISA) fiduciaries will likely have to come from the top down, from the Employee Benefit Security Administration (EBSA) at the Department of Labor (DOL).

The EBSA’s latest advisory opinion directly touching on social and/or environmental investing came down late in President Bush’s second term, in 2008, in a publication artfully titled “29 CFR 2509.08-1.” The 2008 guidance clarifies when non-economic factors can be considered by investment fiduciaries serving tax-qualified retirement plans. In a nutshell, the DOL concluded that they are a reasonable tiebreaker. Only in cases where a sponsor has done a full economic analysis and has discovered two investments are essentially equivalent in terms of the role each would play for plan participants can that sponsor base investing decisions directly on ESG factors.

Former EBSA officials have told PLANSPONSOR the thinking behind the 2008 guidance had less to do with limiting the use of environmental factors in portfolio construction and more to do with ensuring participant dollars were not invested to meet the political aspirations of plan fiduciaries holding discretion over their monies. With this in mind, reform seems possible to give greater leeway to ESG considerations. 

NEXT: Change on the horizon?

Indeed, despite his frustrations, Richardson holds out hope that ESG will continue its march into the mainstream.

He observes that President Obama has increasingly made headlines for unprecedented tightening of airborne carbon waste standards in the energy extraction, power generation and automotive industries. 

It's moves like that which make the markets pay attention, Richardson notes. When one contemplates the standing these sectors have in a given global equity index, it’s becoming clear a carbon-related reckoning is coming, and that the DOL will eventually have to revisit it’s opinion that ESG factors are something separate from performance factors.

“We don’t know when exactly that will happen,” Richardson admits, and there’s not necessarily a reason to suspect carbon-issues will be suddenly priced into the market in one fell, 2008-style correction. “The price of carbon waste and resource inefficiency will eventually be priced into the market, either slowly over time or in a rush, but either way, now is the time to get your portfolio ready.”

His advice for plan sponsors and advisers is to review their current investment lineup, to see to what extent their investments already use ESG, and the extent to which their investment fund offerings carry “uncompensated carbon risk.” Also important will be assessing whether there is demand in the participant population for this type of investing opportunity. All of these responsibilities can reasonably be argued to be a part of the fiduciary duty, even now under the outdated guidance, he feels.  

“Many providers, encouragingly, are getting more serious about the S and G in ESG, the social responsibility and governance considerations,” he adds. “I’m talking about things like board accountability, social capital and executive compensation. These are already emerging as key issues in the modern economy, and we hope the focus will expand to environmental factors too.”

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