Health Insurance Still Tops Benefits List

December 13, 2005 (PLANSPONSOR.com) - Employees still rank health insurance as the most important benefit, according to the Principal Financial Group's Well-Being Index.

Ninety percent of respondents ranked health insurance high in importance, the same number as in 2004, according to the survey (see Americans Still Fretful about Financial Future ). A distant second was defined contribution plans, cited by 71%, with defined benefit (55%), disability insurance (55%), and life insurance (51%) benefits rounding out the top five ranked by importance.

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According to the survey, the top benefit offered by firms with 10 to 1,000 employees is health insurance (88%), followed by life insurance (65%), defined contribution retirement plans (64%), free parking (57%), and disability insurance (48%). However, the research found a significant drop in the ranking of DC and disability insurance offerings from last year (72% and 53% in 2004, respectively).

Sixty-two percent of employees were most satisfied with their employer’s defined benefit pension plan, while 54% were most satisfied with their employer’s DC plan benefit, however, the index showed a drop in satisfaction with life insurance benefits. Fifty-one percent of respondents gave this benefit a high satisfaction rating in 2004, compared with 45% in this year’s survey.

Among benefits they wished their employer offered, but didn’t, a defined benefit plan (18%) and a profit sharing/bonus plan (12%) were the top two selections.

Respondents would like to see their health insurance benefit (45%) and DC plan (14%) improved, more than other benefits. Thirty-seven percent of employees reported increased co-pays for their health insurance and 31% reported increased employee deductibles, while 16% said they were given reduced medical benefit coverage options in 2005.

Performance Anxieties

The number of employees who said a good benefits plan encourages them to perform better has dropped from 70% in 2004 to 65% in 2005. The number of employees who feel their employer is concerned about their long-term financial future also dropped, from 33% in 2004 to 25% in 2005.

The majority of employees are very concerned about their financial future (73%), and only about a quarter (29%) said they were extremely happy about their current financial state. One-fourth of employees said they had not yet planned for their retirement savings or security. Job security is a top priority for respondents – 52% ranked it as the most important, compared with 36% who ranked long-term financial future with top importance and 12% who ranked challenging work as such.

On the issue of retirement savings, the index found that 77% of employees who have retirement savings are not making changes to how their investments are invested while 23% are – 15% shifting to more stable investments, and 9% to a more volatile mix. There was a significant decline in the proportion of people moving money from volatile investments to stable investments for this year when compared to last year (21% in 2004) and a significant increase in the people not making any changes (77% in 2004).

Forty-five percent of survey respondents reported being very/somewhat satisfied with the tools provided by their employer for saving for the future. Thirty percent said they were very/somewhat dissatisfied.

Finally, an impressive 72% of respondents said they would be interested in the new Roth 401(k)/403(b) option, but 59% said they were not sure their employer would be offering it. Of those who did know their employer would be offering it, 69% said they plan to participate.

Harris Interactive conducted The Principal Financial Well-Being Index survey of 1,213 employees from November 7-17, 2005.

Morningstar to Acquire Ibbotson Associates

December 12, 2005 (PLANSPONSOR.com) - Morningstar, Inc. plans to acquire Ibbotson Associates, a firm best known for its asset allocation services, in a sign that consolidation in the education and advice industry continues.

According to the announcement, Morningstar is to acquire Ibbotson for $83 million in cash.Ibbotson will bring approximately 70,000 advisor clients and 700 institutional clients to Morningstar for a total of more than 210,000 advisors and 1,200 institutions, in addition to Morningstar’s more than four million individual clients.

The Business of Advice

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Currently Ibbotson has approximately $3.5 billion in assets under management for participants in 401(k) and other defined contribution plans and manages assets for several major retirement plan providers, according to the announcement.   Morningstar has $225.9 million in assets under management for retirement accounts, and provides a suite of retirement planning services through approximately 69,000 plan sponsors and 30 plan providers for approximately 12 million retirement plan participants.

Joe Mansueto, chairman and chief executive officer of Morningstar, told PLANSPONSOR, “Asset allocation plus security selection equals better advice for investors.   Marrying [Ibbotson’s] asset allocation engine with our selection capabilities will provide better advice for investors.”

Mansueto said that he believes the key in the advisor business for retirement plans is to have a broad-based solution for different participant needs.   While some participants are very comfortable with managing their own accounts, others want a professional to manage their accounts for them, so a dual-pronged effort of an online tool and outsourced advisor meet both needs.   Ibbotson was an early leader in providing this combination, he said.

In addition, Ibbotson’s managed retirement accounts are hosted by the provider, while Morningstar hosts theirs.   Mansueto says the acquisition will enable Morningstar to provide both types of solutions for clients.

Finally, Mansueto told PLANSPONSOR that Ibbotson is involved in putting hedge fund of funds together, so the acquisition will introduce Morningstar to that emerging market.   Meanwhile, he said Morningstar is optimistic about expanding Ibbotson products into overseas institutional markets.

Results of the Deal

Ibbotson’s major product lines are investment consulting and research, planning and analysis software, investment advice, educational and marketing services, and a line of presentation materials.   An integration team will review both companies’ product lines to determine product-level marketing plans, according to a Q & A on Morningstar’s Web page.  

Morningstar plans to keep Ibbotson’s name.   Mansueto said Ibbotson is a well respected brand and “represents the industry standard when it comes to asset allocation.”

Roger Ibbotson, the firm’s founder, and Mike Henkel, President of Ibbotson, plan to stay with Morningstar.   Morningstar said in its Q&A that decisions concerning the 1,120 Morningstar staff and 150 Ibbotson personnel will be made as the integration team concludes its work.

PLANSPONSOR’s 2005 Advice Buyer’s Guide results on Ibbotson can be found  here .  Results for Morningstar can be found  here .  

A fact sheet and Q & A can be found  here .  

The acquisition, Morningstar’s largest to date, is expected to close in the first quarter of 2006.

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