Benefits October 31, 2011

ERRP Approvals Consistent with Provision of Benefits in Market

October 31, 2011 (PLANSPONSOR.com) – A new Government Accountability Office (GAO) report on the Early Retiree Reinsurance Program (ERRP) finds distribution of reimbursements is consistent with the provision of retiree health benefits in the marketplace.
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According to the report, the largest share–about 46%–of the $2.7 billion in ERRP reimbursements approved as of June 30, 2011, went to government entities. The GAO noted that government entities are more likely than other types of employers to provide health benefits to their retirees.  

The majority of plan sponsors in the GAO’s review intend to use ERRP reimbursements to reduce a combination of the plan sponsor’s costs and plan participants’ costs. Specifically, 17 of the 25 plan sponsors whose program applications we reviewed indicated that they intended to use ERRP reimbursements to reduce a combination of their own and participants’ costs.   

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Of the remaining eight plan sponsors, four indicated that they intended to use ERRP reimbursements to reduce only participants’ costs, and four indicated that they intended to use ERRP reimbursements to reduce only their own costs.  

ERRP was established pursuant to the Patient Protection and Affordable Care Act (PPACA) to provide reimbursement to participating employment-based health plans The reimbursements provided by the program are intended to cover a portion of the cost of providing health benefits to early retirees– individuals age 55 and older who are not eligible for Medicare. Sponsors of participating health plans can include commercial organizations, government entities, nonprofit organizations, religious organizations, and unions. Under the program, these plan sponsors can use ERRP reimbursements to reduce their own health benefit costs, plan participants’ health benefit costs, or any combination of these costs. PPACA appropriated $5 billion in funding for ERRP.  

The Department of Health and Human Services’ Center for Consumer Information & Insurance Oversight (CCIIO) established the program on June 1, 2010, and is responsible for its implementation--including determining which plan sponsors are eligible to participate in the program. In total, CCIIO approved applications from 6,078 plan sponsors to participate in the reimbursement program--nearly all of those who submitted applications during a 10-month application period. CCIIO officials told the GAO that the applications to participate and subsequent requests for reimbursement they received were processed in the order in which they were received and were not given preference for any reason.  

HHS projects that the $5 billion appropriated for ERRP will be expended by the end of fiscal year 2012--before the January 1, 2014, end date for the program (see Early Retiree Reinsurance Program to End).  

The GAO report can be found at http://www.gao.gov/products/GAO-11-875R.  

Investing October 31, 2011

Institutional Investors End Streak of Positive Returns in Q3

October 31, 2011 (PLANSPONSOR.com) - Northern Trust announced that U.S. institutional investment plan sponsors lost 9% at the median in the third quarter of 2011, ending a streak of four consecutive quarters with positive results.
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According to data from the Northern Trust Universe, Corporate ERISA Pension Plans had the strongest third-quarter performance of all segments, with a loss of 7.5% at the median. Corporate ERISA plans benefited from higher allocations to fixed income than the Public Funds and Foundations & Endowments segments, which tallied losses of 9% each at the median.   

A press release said Fixed Income Programs in the Northern Trust Universe gained 2.1% in the third quarter while both U.S. and non-U.S. equities posted steep losses. The median U.S. Equity Program was down 16.2% for the quarter, while International Equity Programs lost almost 20%.   

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U.S. Equity Program managers trailed the Russell 3000 Index of U.S. stocks by about 90 basis points in the third quarter, as active managers primarily struggled during the time period to outperform their respective benchmarks. In alternative asset classes, Real Estate was up 0.6% and Private Equity gained 3.2%, while Hedge Funds lost 2.7% for the three months ending September 30.   

“Institutional Plan Sponsors endured another tough third quarter, with weak equity returns driving the losses,” said William Frieske, senior performance consultant, Northern Trust Investment Risk & Analytical Services, in the press release. “Based on observations over the last 15 years, our Universe database has shown that the third quarter has historically been the lowest performing quarter during the calendar year. For example Public Funds have had an average median loss of 0.7% in the third quarter over the last 15 years. That compares to average gains of almost 5% in the fourth quarter, 0.8% in the first quarter and 3.1% in the second quarter for those funds during the same respective period.”  

The Northern Trust Universe represents the performance of about 300 large institutional investment plans, with a combined asset value of approximately $641.1 billion, which subscribe to Northern Trust performance measurement services.

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