In 2020, the IRS implemented increases in allowance caps for the qualified small employer health reimbursement arrangement (QSEHRA) for both single employees and employees with a family. Companies are allowed to reimburse single employees $5,250 per year and employees with families $10,600 per year in 2020.
According to PeopleKeep’s 2020 QSEHRA Annual Report, one of the most powerful benefits of a QSEHRA is the ability employers have to set an allowance cap that fits their budget. As a result, they never have to worry about exceeding it. And as long as they are in line with, or below the government-regulated allowance cap, the QSEHRA allows small businesses to compete with larger employers with robust benefits packages.
The report shows that employers have a low chance of paying out the full budgeted allowance amount. Only 18% of single employees and 19% of employees with a family used their entire allowance.
In 2019, the average allowance amount for single employees was $280/month and $514/month for employees with a family. And in 2019, each HRA participant averaged at least one reimbursement per month, totaling 12 average reimbursements, per employee, for the entire year.
QSEHRAs permit employees to use their allowances for both premium and non-premium expenses, which is not possible under a group health benefit. According to the PeopleKeep report, the five most common non-premium reimbursements employees submitted were for prescription drugs, medical office visits, chiropractic care, dental care and mental health counseling. “These expenses speak well to the unique appeal that an HRA has for employees. Since individual health insurance covers a broad range of medical care, it is important that small business owners have resources like the qualified small employer HRA to offer a way for employees to make their health care affordable,” the company says.
In its first state-by-state analysis, PeopleKeep compared the top five states by the highest average allowance amounts with the highest individual health plan premium costs. The company says this is important to review because businesses in states with high health expenses should increase allowance amounts as a result. Results of the comparison show that businesses in Rhode Island, North Dakota and Connecticut are doing well to correlate the allowances they offer with the cost of health insurance in their states.
The company says its report shows the QSEHRA enables small businesses to effectively compete with larger businesses offering group health insurance.
iShares announced it will expand its environmental, social and governance (ESG) ETF lineup and enhance its existing ESG funds.
“Sustainable investing has reached an inflection point as investors better understand the increasing impact that ESG-related risks have on asset pricing, and account for these risks in their portfolios,” says Armando Senra, head of Americas iShares at BlackRock. “That has translated into growing demand for iShares sustainable ETFs and the need to offer greater choice to make sustainability our standard for investing.”
iShares plans to debut three fossil fuel-screened ETFs under a new “advanced” product range that seek to track indices with extensive screens, including palm oil, for-profit prisons, controversial weapons and increased controversy score requirements.These proposed funds will apply the most screens of any iShares ESG ETFs in the United States and will offer exposure to U.S., developed and emerging markets companies.
Additionally, iShares is rebranding its Sustainable Core ETFs as “aware.” Aware ETFs seek to track indices that include companies that exhibit favorable ESG characteristics and are then optimized to offer a similar risk and return profile to broad market indices. The aware range was introduced in October 2018 with seven ESG ETFs across equities and fixed income and was designed to offer low-cost building blocks for investors to construct broad, diversified and sustainable portfolios.
MSCI will also be implementing, to the indices of these funds, additional screens to exclude companies with thermal coal and oil sands revenue exposure, iShares says. The new screens will be effective on March 2.
T. Rowe Price Announces Enhancements to TDFs
T. Rowe Price will enhance its target-date portfolios to help improve retirement outcomes and address the headwinds investors face in achieving retirement security, including longevity risk, inflation risk and market risk.
Over a two-year period, T. Rowe Price will gradually increase equity exposure in the Retirement and Target portfolios’ glide paths early in the accumulation years and post-retirement and add emerging markets and U.S. large-cap core equity strategies to further diversify the underlying investments.
Based on T. Rowe Price’s research, the company will raise the equity allocation of the retirement glide path at the start of the investing lifecycle to 98% equity, from the current 90% equity. The 98% equity allocation will be held constant until 30 years from retirement and maintain a 55% equity allocation at retirement. Additionally, the company will raise the equity allocation after retirement, reaching a final 30% equity allocation 30 years past retirement, an increase from the current 20% allocation.
The target glide path will also see an increase to 98% and hold that equity allocation constant until 35 years from retirement. It will maintain a 42.5% equity allocation at retirement and then raise the allocation after, reaching a final 30% equity allocation 30 years past retirement.
The transition will occur over a two year period starting in April. Portfolios closest to retirement will not experience an increase in equity from their current levels, while other vintages/dates will adjust their equity allocations gradually each quarter. As a result, many investors will see no change to their current equity allocation.
T. Rowe Price has also announced the addition of two investment strategies to the underlying building blocks of several target-date products; Emerging Markets Discovery Stock will be added to all the firm’s target-date strategies and U.S. Large-Cap Core will be added primarily to actively managed strategies (Retirement Funds, Retirement I Class Funds, Retirement Income 2020 Fund, Retirement Trusts, Target Funds, and Target Trusts).
For its Retirement and Target mutual funds, T. Rowe Price is moving to a top-level fee structure in which expense ratios will no longer vary depending on the management fees and expenses of the underlying funds. The new fee structure will be implemented in April.
As a result of this change, none of the firm’s target-date portfolios will experience an increase in expense ratios, and some will see their expense ratios decrease.
Swan Global Investments Reduces CIT Fees
Swan Global Investments (Swan) has announced a reduction in fees for Class 1 & Class 2 of the collective investment trusts (CITs) within the Swan Defined Risk Collective Investment Trust, effective as of February 1.
The net management and trustee fee reductions are 47 basis points for Class 1 and 32 basis points for Class 2. That is approximately 49% savings and a 45% savings in trustee and management fees in Class 1 and Class 2, respectively.
The defined risk strategy (DRS) investment approach, behind the Swan Defined Risk Collective Investment Trust strategies, actively seeks to mitigate downside risk and create a gentler investor experience when markets are in turmoil. Swan Defined Risk CITs also seek to smooth returns over market cycles. Consistency of rolling returns helps to address timing risk associated with different enrollment and retirement dates, as well as limiting “statement shock,” encouraging participants to remain invested and on track to meet their goals.
“Loss aversion and protecting investors’ irreplaceable capital is really important for fiduciaries, plan sponsors and retirement advisers alike,” says Gib Watson, chief strategy officer at Swan. The company follows a three-pronged approach to the investment strategy, matching the different investment objectives of plan participants, then providing a defined risk strategy to enable protection and applying it to major equity asset classes, Watson adds.
Effective February 1, the following fees will be reduced as follows in Class 1:
Fund Name
Prior Trustee/Manager Fees
Current Trustee/Manager Fees
Fee Reductions
SWAN Defined Risk Income
.95%
.48%
.47%
SWAN Defined Risk Conservative
.95%
.48%
.47%
SWAN Defined Risk Moderate
.95%
.48%
.47%
SWAN Defined Risk Moderate Growth
.95%
.48%
.47%
SWAN Defined Risk Aggressive Growth
.95%
.48%
.47%
Effective February 1, 2020 the following fees will be reduced as follows in Class 2:
