Investing November 12, 2004

Fund Return Mediocre in Q3

November 12, 2004 (PLANSPONSOR.com) - Third quarter performance for corporate, public, and foundation/endowment plans were lackluster at best, according to a survey of plan sponsor performance by Mercer Investment Consulting, Inc.
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Corporate and foundation/endowment plans returned a meager 0.2% from July to September, only slightly below the 0.5% returns seen in public plans. These figures represent a small portion of the 12.5%, 13.1%, and 13.3% returns seen in corporate, public, and endowment/foundation plans respectively. The year-to-date figures are higher than the ten-year running average, with the annualized returns for all three coming in between 9.5% and 10.4%.

Value managers outperformed growth managers significantly in the third quarter. While value managers gained value for their funds, growth managers lost, with a difference of 670 basis points being seen between the two styles.

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The median large-cap manager outperformed the S&P 500 by 10 basis points in the third quarter. Small-cap managers outperformed their larger counterparts by 30 basis points from July to September. Both were losers however, with small-cap managers losing an average of 1.5%, only marginally better than the 1.8% losses seen by the large-cap managers.

Based on Mercer IC’s Fearless Forecast, an survey of investment managers regarding their 2004 market expectations, large-cap equities are forecast to return 9.1%, while small-cap assets are expected to return 8.7%. Both sectors, however, have returned well below these expected results, with large-cap equities producing returns of only 1.5% so far and small-cap equities returning only 3.7%.

International equities outperformed their domestic counterparts in the third quarter by 170 basis points; both, however, lost value overall. Within international equities, value outperformed growth by 30 basis points in the third quarter.

Fixed-income returns were slightly more positive, with bonds outperforming the 2004 Fearless Forecast by 0.9% over the year on the back of a positive third quarter result. The median high-yield manager had returns of 4.6% on the quarter, while the average international fixed-income manager had gains of 3.2% in the same time-frame.

Mercer Investment Consulting ( www.merceric.com ) is unit of Mercer Human Resource Consulting LLC. The survey, as well as the 2004 Fearless Forecast, is available online at the company’s Web site.

Benefits November 11, 2004

Wachovia Switches to Salary-Graded Health Care Premium System

November 11, 2004 (PLANSPONSOR.com) - In a move that some say signals a significant trend with health care benefits, the nation's fourth-largest bank, Wachovia Corp., has given workers with lower salaries a cut in their health care premiums and will subsequently raise the premiums for employees hauling in a larger paycheck.
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Some, however, say that this could be used against the bank and other institutions that use such salary-graded systems – a group that includes 18% of US employers, according to a Hewitt Associates survey – by competitors hoping to lure away top executives, according to the Associated Press (AP). Companies have to weigh the benefits of lowering costs for low-income workers with losing top executives, analysts say.

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This new tier-priced system replaces the older flat-payment one in which all employees paid the same premium for health care coverage. It is a move that is meant to reduce health care costs for low-income employees, and it has been seen in other large institutions as of late. Davidson College, situated near Wachovia in Charlotte, NC, last year chose to adopt such a program. The program will be altered slightly next year to base premiums on household income, however, after it was noticed that some lower income workers receiving premium cuts actually had high-income spouses.

A Wachovia spokesperson would not comment on how the premiums at the company actually were altered, but the company is asserting that the plan has been met with approval, according to the AP.

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