Investing August 10, 2016

ERISA Plans Top Institutional Plan Portfolio Returns in Q2

Corporate ERISA plans were helped by a larger allocation to U.S. fixed income.

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After two consecutive quarters of declines starting in the second quarter of 2015, Northern Trust Universe data shows the second quarter of 2016 was the third consecutive quarter of positive returns for institutional asset owners, with plan sponsors gaining approximately 1.9% at the median.

The 1.9% median return was “a significant increase from the 0.7% median return recorded in the previous quarter,” Northern Trust explains, citing data covering 300 of the largest U.S. institutional investment plans, with a combined asset value of approximately $899 billion. “Since 1998, the average second quarter median return has been 1.7%, placing this quarter slightly above average.”

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In the second quarter of 2016, the corporate Employee Retirement Income Security Act (ERISA) plans category fared best among all plan types with a median return of 3%, Northern Trust finds. Public funds were close behind with 1.7% in gains, while foundations/endowments netted 1.5% in the second quarter.

“Differing returns across plan types were driven largely by the duration of their fixed-income investments,” explains Bill Frieske, senior investment performance consultant, Northern Trust Investment Risk and Analytical Services. “In an effort to de-risk their defined benefit pension plans, corporate ERISA plan sponsors have been lengthening the duration of their fixed-income programs. Interest rates declined in the second quarter, which increased returns for long duration bonds and helped boost corporate ERISA plan returns.” 

Looking at other asset categories, Northern Trust data shows non-U.S. equities returned -0.2% at the median, while U.S. equities returned 2.2% in the quarter. Corporate ERISA plans were helped by a larger allocation to U.S. fixed income (35% at the median), which returned 2.6% at the median.

For public funds, returns were dampened by a larger allocation to international equities (15% at the median), which produced the lowest median return of the major asset classes. For foundations and endowments, returns were muted by weak performance from a significant 11% allocation to private equity, “the second lowest returning major asset class at 0.2%.”

Long-term data reported with the quarterly results shows corporate ERISA plans have enjoyed 5-year trailing returns of 7.5%, while public funds earned 6.9% and foundations/endowments netted 5.7%.

Additional research and information is available on the Northern Trust website.  

Administration August 10, 2016

Paper or Web: Which Enrollment Process Should Employers Use?

There’s a disconnect in how employers think employees want to enroll in benefits and how employees actually want to enroll.
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Employers are not in touch with how their employees want to enroll in benefits, findings of a recent LIMRA survey suggest.

Only 38% of surveyed employers think their employees want to use a computer to enroll, while more than one-quarter believe their employees still want to enroll through paper forms. However, a 2015 LIMRA study found that 68% of employees want to enroll in their benefits online or electronically and only 16% want paper enrollment forms.

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This disconnect hurts employees’ perceptions of their employers. Surveyed employees who preferred online enrollment felt that companies still using paper enrollment were stuck in the past, out of touch with today’s technology, or thought that it would simply be better done electronically.

Looking beyond the benefits enrollment method an employer uses, the study uncovered another disconnect about how employees enroll in their benefits. While one in four employers automatically re-enroll their employees annually in at least some benefits, less than 10% of employees prefer this automated process. 

Employers need to gain a better understanding of their employees’ preferences. “With more and more Millennials entering the workforce, it is likely this disconnect between employers’ paper-centric enrollment mentality and the modern technological approach of their employees will only grow,” LIMRA says.

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