Benefits February 6, 2018

Workers Favor Employer-Provided Health Benefits Coverage

Respondents to an AHIP study indicated their employers and insurance providers working together to improve health and lower costs improves their favorability of both.

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With the rise of health care costs unlikely to dwindle in the future, an America’s Health Insurance Plans (AHIP) survey reveals the significance participants place on employer-provided health benefits coverage.

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The 2018 study, which surveyed 1,000 American workers with employer-provided coverage, found 56% of employees consider their coverage a key factor in sticking with their current job, and 46% say the coverage played a successful role in recruiting them for the position. Additionally, when asked if an average American would benefit off their health insurance plan if enrolled, 46% of respondents believed he would be better off.

One of the highest numbers, however, was the effect of employer contributions to health insurance plans. Seventy-seven percent of respondents said they felt more favorable towards businesses who provided health insurance to workers, with 18% voting they were neither more nor less favorable, and only 5% saying they were not.

“Employer-provided coverage is a pillar of Americans’ health and financial security,” says Marilyn Tavenner, president and CEO of AHIP. “The results reaffirm that American workers and their families depend on their coverage to provide them with protection and peace of mind.”

Respondents prioritize comprehensive benefits (58%) over affordability (42%) of plans. Prescription drug coverage (51%), preventive care (47%), and emergency care (47%) rank among the benefits that matter most. Respondents indicated their employers and insurance providers working together to improve health and lower costs improves their favorability of both (83% and 87%, respectively). Additionally, 58% said they would understand paying higher costs if every service needed was covered.

Of those who did not feel satisfied with their current health insurance plan, 82% voted costs as the factor. Other issues included inadequate coverage (40%); out-of-network costs (22%); excessively confusing information (18%); little choices (10%); denied claims (9%); lack of innovation (6%); too much paperwork (6%); poor customer service (5%); and losing a doctor (2%).

More information on the study can be found here.

Investing February 6, 2018

Managed Accounts and the Shifting Fiduciary Landscape

Common sources of plan sponsor and participant concern with managed accounts include cost concerns, lack of participant understanding, and lack of qualified default investment alternative status unless only options on the plan's core investment lineup are used.

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The latest research from Cerulli Associates suggests defined contribution (DC) plan managed account assets have exhibited strong year-over-year growth against the backdrop of an evolving fiduciary landscape.

Even with the strong 2017 growth, Cerulli notes, managed accounts continue to lag behind target-date funds (TDFs) in terms of gross adoption and investment rates. As such, total managed account assets among the eight providers examined in Cerulli’s new reporting only represent roughly 4% of total DC assets.

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Jessica Sclafani, a director at Cerulli, explains the most common reason for which 401(k) plan sponsors offer participants a managed account service is that “it can be positioned as a retirement income solution.” 

“While the DC industry continues to wonder how to best structure in-plan retirement income solutions with guaranteed interest components, managed accounts are quietly making progress as a less controversial option for plan sponsors to offer participants,” Sclafani adds.

In examining the top-25 DC plan recordkeepers by 2016 assets, Cerulli finds approximately two-thirds (68%) continue to offer a proprietary target-date fund. In contrast, just greater than one-quarter (28%) of the top-25 DC recordkeepers offer a proprietary managed account service.

“While recordkeeping is sometimes referred to as a commoditized business, it clearly creates opportunity for higher-margin asset management opportunities, such as proprietary target-date or managed account solutions,” Sclafani says.

An evolving fiduciary landscape impacts QDIA choice

The Cerulli research goes on to examine the shifting spectrum of services and solutions that are marketed to DC plans as “fiduciary support” or “fiduciary services.”

“Often the best determinant of the specific service or product being offered is the plan asset segment in question,” the report states. “For example, in thinking through the opportunities for fiduciary services in the large and mega DC plan asset segments, ‘fiduciary services’ is generally synonymous with outsourced chief investment officer (OCIO) services. The services associated with an OCIO mandate, however, are drastically different than the fiduciary services available in the micro and small DC plan asset segments—sometimes referred to as ‘baked in.’”

Cerulli calls this type of talk “an example of DC jargon at its finest.”

With the changes resulting from the Department of Labor’s ongoing fiduciary rule expansion, sponsors and providers are talking more about “the concept of minimizing or ring-fencing fiduciary liability.” In the micro and small DC plan asset segments, this force is manifesting itself in the increasing interest and use of fiduciary services “baked in” at the recordkeeper, Cerulli says. 

“A new category has emerged to describe the providers of outsourced fiduciary services in the micro and small DC plan asset segments—shadow fiduciaries,” Cerulli’s report continues. “This refers to a scenario in which a recordkeeper will engage a provider, most often Morningstar, Mesirow, Wilshire, and/or Envestnet, to conduct further due diligence on the investment options available on a given platform to generate a narrowed list of funds for which the provider will serve as an ERISA 3(21) or ERISA 3(38) co-fiduciary. Currently, this arrangement is most relevant to micro DC plans (less than $5 million in assets); however, some fiduciary service providers and asset managers anticipate use expanding into the $5 million to $10 million plan range.”

Cerulli sizes the DC plan market as follows: “In 2016, micro plans, defined as plans with fewer than 100 participants, represented 88% of total 401(k) plans. Conversely, mega and mega plus plans, defined as plans with 5,000 and greater participants, represent less than half a percentage point of all 401(k) plans (0.36%). The number of total 401(k) plans expanded at a 10-year compound annual growth rate (CAGR) of 1.8% from 2006 to 2016. New plan creation is primarily reflected in the micro plan segment, which grew total plan count by a 10-year CAGR of 2.0%. In contrast, total plan count for the mega plus segment, defined as plans with greater than 20,000 participants, expanded at a 10-year CAGR of 1.2%.”

Growth in plan count among the larger segments is primarily a reflection of plans increasing in terms of participant count and graduating to the next segment as opposed to new plan creation. Where there is new plan creation in the larger segments, it is typically the result of a company merger, Cerulli reports.

These findings are taken from the new Cerulli report, “U.S. Retirement Markets 2017: The Rise of Fiduciary Services.” More information on obtaining Cerulli research is available here.

*Please note, the third paragraph of this story has been edited post-publication to reflect a mistake pointed out by the quoted subject. 

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