Benefits October 30, 2013

Health Exchanges Could Greatly Benefit Young Adults

October 30, 2013 (PLANSPONSOR.com) – The health insurance exchanges created as a result of the Patient Protection and Affordable Care Act (or ACA) could be especially beneficial to young adults.
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An October 28 research brief from the Department of Health and Human Services (HHS) found that nearly five in 10 (or 46%) of uninsured young adults (those between the ages of 18 and 34) may be able to purchase “bronze level” health coverage, via the exchanges, for $50 or less per month. This figure would be after the use of tax credits.

The HHS brief cited that under the ACA, “advanced payment of the premium tax credits will be available to help eligible individuals and families afford insurance coverage through the Health Insurance Marketplace [i.e., the exchanges].”

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Young adults in households of any type account for 41% of the 41.3 million eligible uninsured nationwide, said Laura Skopec and Emily R. Gee, the authors of the brief. “Young adults are the age group most likely to be without health insurance coverage and are therefore a key target for outreach and enrollment activities,” said the authors.

Skopec and Gee also pointed out that about 1.8 million of eligible young adults may be able to pay $100 or less per month for silver- or bronze-level health coverage and that about 92,000 may be able to pay $100 or less for catastrophic coverage. In addition, another 1.3 million eligible young adults may be able to purchase bronze-level coverage for $50 or less a month after tax credits.

To arrive at their conclusions, the authors used data about household composition and income from the 2011 American Community Survey Public Use Microdata Sample.

A copy of the research brief, which includes the methodology for its analysis, can be downloaded here.

Benefits October 30, 2013

Russell Outlines TDF Evaluation Strategies

October 30, 2013 (PLANSPONSOR.com) – The right metrics and valuation strategy can help defined contribution (DC) plan investment committees cut through the complexity of evaluating target-date fund (TDF) performance.
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Exactly what those metrics and strategies are—and how to establish them—form the subject of a Russell Investments white paper dubbed “Evaluating target date investment performance.” In the paper, researchers urge investment committee members to separate investment performance measures and participant success to ensure the focus remains on employee outcomes. Other key considerations include showing skepticism towards peer-relative performance evaluation and ensuring glide paths have been reviewed independently.

Researchers also outlined what they called the four TDF performance drivers critical for investment committee members to consider when making plan decisions. These include a fund’s market risk exposure by age, strategic positioning, tactical positioning and security selection features.

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While the first measure, also known as a plan’s glide path, is a long-term consideration and therefore difficult to judge directly against a single benchmark, the other three performance drivers can be evaluated using two theoretical benchmarks outlined in the white paper. These are called the “simple benchmark” and the “composite benchmark.”

The simple benchmark, according the paper, is based on two indexes that are combined to mirror a target date portfolio’s total allocation to growth assets (equities, commodities, etc.) and capital-preservation assets (core bonds, Treasury Inflation-Protected Securities, etc.). The result is a benchmark that can provide a passive representation of the two broad asset categories most frequently defined in a glide path.

The composite benchmark, on the other hand, is developed by rolling up the respective indexes representing each asset class available in a TDF and weighting those to the portfolio’s strategic asset allocation. Thus the return associated with this type of benchmark is designed to isolate the value added or detracted from active security selection, tactical shifts, rebalancing, fees and fund-level transaction costs, according to the paper.

Together, the two benchmarks can provide insight into a TDF’s performance. For instance, when comparing the performance metrics of the composite benchmark to those of the simple benchmark, the composite benchmark should be doing better on a risk-adjusted return basis if the asset allocation decisions of the TDF managers are actually adding value.

A full discussion of how to use these benchmarks, as well as the paper’s other suggestions to DC investment committee members, is available here.

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