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Young investors: IRA contributions can wait

February 15th, 2012 Comments off

Younger investors are reluctant to make new IRA contributions – Articles – Employee Benefit News.

Despite evidence that younger investors are well-positioned to benefit from long-term retirement savings less than half (45%) plan to contribute to an Individual Retirement Account for the 2011 tax year, according to research.

A recent T. Rowe Price prospectus cites that more than half, 55%, say they do not plan to fund an IRA or are unsure whether they will by this tax filing season. Meanwhile 71% of these investors made an IRA contribution for the 2010 tax year.

According to the research about IRAs and the investing practices of investors from Generations X and Y (ages 35-50 and 21-34 for this study), the decline in commitment to IRAs is being driven by five factors:

  • A belief that participation in a 401(k) plan is adequate for now (42%).
  • A feeling that they can’t afford it (32%).
  • Economic uncertainty (23%).
  • Market volatility (14%).
  • Uncertainty surrounding their job (12%).

If respondents had an extra $5,000, 56% of respondents say they would pay off existing debt or add to a “rainy day” fund while 16% say they would contribute to an IRA.

“Given their economic fears, it is understandable why many younger investors might be unable or unwilling to fund all of their tax-advantaged accounts and are focusing primarily on their 401(k) during this tax season,” says Stuart L. Ritter, senior financial planner for T. Rowe Price.

“However, younger investors must remember that their investments may need to cover 30 years or more of living in retirement,” Ritter adds.  “They need to save consistently. There will always be some level of uncertainty and competing financial demands. The longer people wait, the more they will need to save later.”

Many younger investors have lost faith in stocks since they have experienced the subpar returns of equity markets over the past decade. Research finds that 22% of Gen X and Gen Y investors feel confident about the financial markets heading into 2012. Meanwhile 28% of investors who plan to fund an IRA this tax season will direct their contributions to more stable investments such as money market funds, the research shows, despite the historically low current yields and their lack of suitability as long-term retirement investments.

“Younger investors need to invest for growth,” Ritter says. “They shouldn’t focus on what the market did last year or what it might do this year. They are investing for decades and need to have an appropriate mix of stocks in their portfolios to have hope of achieving their long-term financial goals.”

Biggest financial surprises of 2011

January 3rd, 2012 Comments off

Financial surprises of 2011 – Articles – Employee Benefit Adviser.

Thur., Dec. 22, 2011 (Reuters) — In every year, there are a host of surprises that come along like earthquakes: They are nearly impossible to predict.

Who would have thought that Congress would be at loggerheads over raising its debt ceiling or that Standard & Poor’s would cut the credit rating on U.S. Treasuries? On top of that, who would have then foreseen that U.S. paper would still be regarded as a global safe haven, gold would tumble and interest rates would continue to fall?

We can be thankful that more didn’t go wrong with the global economy, although things could certainly go haywire next year. Here are some things that surprised me personally and professionally this year and may flummox us in the next 12 months.

1.Health care reform is on track, maybe. Despite all of the dire predictions, the Affordable Care Act, also derisively known as “Obamacare,” managed to provide insurance for 2.5 million young adults in 2011, according to the Department of Health and Human Services. That’s a good start for an ambitious program.

But hold your applause. The U.S. Supreme Court has scheduled oral arguments for the constitutionality of the law in 2012, particularly its mandate for the uninsured to buy coverage. Many economists say that without the mandate the plan will fail, so anything could happen. I hope it survives and Congress expands it to cover more people at a lower cost.

2. You can negotiate on big health care bills. This was a huge surprise to me this year. Due to two health emergencies, my family had some sizable out-of-pocket bills this year — more than $6,000. With a large deductible and virtually no coverage for doctor’s visits and out-of-hospital tests, we asked our local hospitals for help in reducing the cost of our care. They exceeded my expectations and I was grateful.

Are health care providers more accommodating to the under-insured in the wake of the Affordable Care Act? I’m not sure, although it doesn’t hurt that the HHS is using their bully pulpit to monitor health insurance premium increases. More needs to be done, of course, and there are still about 40 million American uninsured. So the Supreme Court ruling looms large.

3. Patronizing local merchants still makes sense. Don’t get me wrong. I love online shopping. I can find things online that I can’t find in the stores and at a competitive price. I’m a big fan of Cyber Monday. I also like the free shipping and energy efficiency of the transaction. I hate malls.

But cybershopping is soulless. It’s hard to find a human being to talk to online. Yet you can still shop local and save money. My family, for example, patronizes a local cooking store and we got to know the proprietor, who did little things like recommend gifts, provide discounts and get us her cooking class schedule ahead of its publishing date. The human touch still matters, especially when merchants know your name and try to personally meet your needs. Shopping local also supports your community.

4. Financial reform can and will work. This may be the biggest surprise of all for anyone who invests. If you knew exactly what middlemen were taking from your retirement fund, you would demand that your employer switch into low-cost index funds.

If your broker-advisers had to adhere to the pro-investor fiduciary model, they will be legally compelled to act in your best interests and not sell you junk that only earns them an obese commission. Both ideas favor disclosure and investor protection and are the subject of much-overdue pending rules from the U.S. Department of Labor and Securities and Exchange Commission.

A third leg of financial reform is the Consumer Financial Protection Bureau, which seeks to provide plain-language disclosure and protection in credit and mortgages. Wall Street and the financial services industry abhor the very idea of these new safeguards, even though they were key pieces of the Dodd-Frank financial reform law passed more than two years ago.

The money trust is pulling out all stops and has fielded an army of lobbyists to destroy these provisions. Although this law was far from perfect and will not stamp out all financial chicanery, we can be thankful that it’s still struggling to be born. We need to give it an extra push. Let your congressmen know how you feel.

What’s going to happen next year? Roll the dice. You can never easily predict the future, but you can sure save for it. In any case, I wish you peace, prosperity and good health.

The author is a Reuters columnist. The opinions expressed are his own.

(Editing by Beth Gladstone)

© 2010 Thomson Reuters. Click for Restrictions.

Investment strategists predict modest growth in 2011

March 18th, 2011 Comments off

Investment strategists predict modest growth in 2011 – Articles – Employee Benefit News.

Confidence is Americans’ biggest asset for future economic growth, James Paulsen, chief investment strategist with Wells Capital Management, told an audience last week at the American Society of Pension Professionals & Actuaries’ 401(k) Summit.

“That fear mongering campaign [in 2008] really worked. It caused a free fall in the economy,” he said, adding that “for some reason, our leaders thought it was okay to run into the economy and yell ‘Depression!’” He compared it to someone running into a crowded theater and yelling ‘fire!’ causing widespread panic.

The events of 2008 caused what he called ‘Armageddon hypochondria.’  “We’ve been looking every day for the next economic blowup.” Still, he believes, “I think we’re back in recovery. If inflation stays in control, we’ve got a great shot at a prolonged economic recovery.”

Fellow speaker David Joy, chief market strategist with Columbia Management, predicted the U.S. economy will grow about 3% this year. “Coming out of a recession of the one we endured, the rate of growth is substandard,” he said. “But 3% is good for the investing environment, particularly equities.”

The labor market is improving, he said but “corporations are very slow to pull the trigger is this regard. They’d rather spend their resources on capital investment. It’s cheaper than hiring back labor.”

Overall, said Joy, “we think it’s gong to be a good year, not a great year, for the economy. It’s going to be an average year in terms of historical returns. That might not sound so exciting but in an environment with inflationary pressures, it’s not so bad.”

Many employers adding new wellness programs in 2011

February 14th, 2011 Comments off

Many employers adding new wellness programs in 2011 – Articles – Employee Benefit News.

Employers just can’t get enough of wellness. In 2010, nearly 75% of 147 mid- to large-size employers offered 19 or more health promotion programs, finds a study by Fidelity Investments and the National Business Group on Health.

In addition, 50% of employers extended their wellness offerings by adding one new wellness program, and 63% plan to do the same in 2011.

According to the survey, nearly 40% of employers plan to add health-risk management programs, such as biometric testing, to their wellness offerings in 2011. Thirty-two percent intend to roll out lifestyle management programs, such as preventive care reminders, while 30% will add communication and education management programs, such as health and wellness newsletters.

“Growing numbers of employers nationwide recognize the importance of having a healthy workforce and its link to improving productivity and reducing rising health care costs,” says Helen Darling, president and CEO of NBGH. “We believe strongly that the various wellness initiatives that employers are undertaking will have long-lasting positive results for employers, workers and their families,” she adds.

The findings underscore employers’ willingness to invest financial resources to help workers to stay healthy and productive, thus making wellness programs a noticeable business benefit.

The data showed that the average employer spent just $154 per employee on health improvement programs, compared to $108 in 2009. One big-ticket item in the wellness arsenal included condition management programs, such as monitoring diabetes treatment, which made up 41% of the $154 spend, a decline from 43% in 2009.

Meanwhile, health-risk management programs, such as health fairs, witnessed a spending jump of 20% in 2010 from 15% in 2009, while the budget for lifestyle management programs, such as stress management, remained nearly the same, 29% in 2010 and 30% in 2009.

To ensure employees participate in the programs, companies are mostly relying on financial incentives. The survey revealed that employers (56%) believe incentive-based programs increased employee participation.

For instance, 62% of employers offered incentives last year, compared to 57% in 2009. Cash and gift cards and extra funds to health savings accounts were popular incentives used by employers. Few (12%), however, reduced employer contributions to health plans if employees didn’t participate in any programs.

On average, the incentives paid by employers totaled $430 per employee in 2010, a 65% jump from $260 in 2009. Of those employers that provided incentives, 50% offered them to dependents of employees at an average value of $420.

“Employers know that a healthier workforce is more productive in the long term,” says Sunit Patel, senior vice president of Fidelity’s benefits consulting business. “Wellness programs in the past have typically had modest impact because of low participation rates, but our study indicated that incentives are starting to make a real difference in employee interest and engagement,” he adds.

Fidelity and NBGH conducted the online survey between Sept. 20, 2010 and Oct. 29, 2010, which involved 147 companies that employed from 1,000 to 100,000 workers.

The survey participants represent various labor sectors, such as transportation, health care, technology, entertainment, manufacturing, retail and energy productions. Still, the researchers caution that “the results of this survey may not be representative of all companies meeting the same criteria as those surveyed for this study.”

Previewing the role of employee benefit brokers and products in 2011

December 22nd, 2010 Comments off

Previewing the role of employee benefit brokers and products in 2011 – Articles – Employee Benefit Adviser.

The year that is drawing to a closejust might be remembered by benefit professionals as the most challenging one ever. Despite signs of recovery in some sectors of the economy, as 2010 ends the country remains stuck in the worst employment downturn since the Great Depression.

As employers downsized in 2009 and 2010, the impact on brokers was severe: the number of covered lives dropped, and top-line revenues took a hit. At Dallas-based Brinson Benefits, for example, the drop-off began in late 2009. Since then, Brinson’s clients have laid off about 10% of their employees, estimates the firm’s president, Dawn Brinson – meaning that the agency lost about 10% of their covered lives. “Even if you retain 100% of your clients, which isn’t realistic, a 10% reduction takes a big toll on your book of business,” she points out.

Thus, all of Brinson’s new sales this year have been geared to replace what was lost through attrition of covered lives. The result: a flat year. Brinson sees better times ahead, though. “The good news is that I think employers have gotten down to their ‘bare necessity’ employees,” she says. If all the pervasive, large-scale layoffs are behind us, she believes, “that gives us the opportunity to pull ourselves out of this flat revenue situation as we continue to write new business.”

Fee for service

Like many principals around the country, Brinson is realistic about an uncertain future: “This year we adjusted to fewer covered lives; next year it looks like we’re going to have to adjust to commission changes and volatility in our commission levels.”

The drop-off in commission revenue will force brokers to deal with an even bigger change, Brinson believes. “I think a lot of insurance professionals in the past have resorted to giving everything away and living on the commission. This is going to force a real change in the mindset of agencies, I believe, to really focus on establishing a fair price for service delivered. In that regard, I really believe we’ve hurt ourselves with this idea of not wanting to talk about price. In so doing, we’ve never even helped our clients decide for certain what they really value.”

Brinson’s philosophy for many years has been to charge reasonable fees for all the services they offer, she explains – “not just benefits advisory services, not just what happens at renewal, but all these other tools and services that we make available to our clients.” In 2011, she expects that benefits brokers will be focused on rounding out their business and figuring out how to charge a fair price for the services they offer.

Growth in voluntary sales

Perhaps the most positive development in 2010 has been the growth in voluntary sales. Voluntary product lines, from dental and disability to the worksite lines like critical illness, accident and permanent life, are the only product lines that have seen growth this year, points out John Penko, SVP of sales, benefit solutions, at American General Life Companies. To Penko, the reason is clear: Employers are having to take a long, hard look at benefits so they can still attract and retain a top-quality workforce.

At the same time, he notes, the employer-funded component of those benefits has decreased. “That suggest employers are making some very difficult decisions in order to continue offering benefits in an overall economic climate and in light of their own expense limitations,” he says.

Brokers, anticipating significant declines in their health insurance revenue as the carriers reduce their commissions as a result of PPACA’s medical loss ratio restriction, are looking at ways to diversify revenue, Penko observes, and as a result they are now more aware of and familiar with voluntary products.

Advisers can expect this growth to lead to more competition among voluntary providers in 2011, asserts Ron Agypt, VP of broker and market development at Aflac. “In my 30-plus years in the insurance business, I’ve never seen as much change as we have now,” Agypt says. “Today we have medical carriers that continue to expand their efforts into voluntary benefits – Aetna and Humana, for example. We’re seeing individual and group products coming together – almost merging into the same type of product, even though they’re on two different platforms. In 2011, we think there will be even more firms getting into voluntary benefits.”

Deluge of DC regulations

The first thing to understand about 2010 is that it has been “a rebuilding year” for individual investors, believes Greg Burrows, SVP, retirement and investor services, at The Principal Financial Group. “The majority of investors who stayed invested and continued to contribute to account value in effect have been able to rebuild their account value to pre-crisis levels and even beyond in some cases,” Burrows says.

In the DC market, 2010 was an extremely active year on the regulatory front – featuring the issuance of rules on adviser fees and the responsibilities of plan fiduciaries. In 2011, Burrows says, “we’ll see them really start to make their way into the marketplace and really start to redefine how service providers present themselves to the market.” In addition, Burrows predicts regulations next year on target-date funds.

Burrows sees a consistent theme of transparency and focus on roles and responsibility. That dynamic will have an impact on how a plan provider, investment management firm or adviser goes about articulating the value they deliver. “As we as an industry go into 2011, there will be a tremendous emphasis on our part to interpret and communicate the new rules, and then implement them appropriately,” says Burrows.

“One of the things we see happening is that advisers increasingly are focusing on the question, ‘How do I clearly articulate the value and services I deliver to my client for the fees that I receive?’” Advisers are learning how to strengthen their value proposition, which is going to help them shape their business going forward, he says.

In 2011 and beyond, look for the issue of retirement income adequacy to gain prominence. “We’re seeing a shift in the industry among consumers, advisers and plan sponsors to try to create a balance of focus – not just on wealth accumulation, but also on how much income accumulated wealth can create for an individual in retirement. We believe that’s a really positive step,” says Burrows. “The more that people are able to focus on income replacement, and not simply on how much they are accumulating, there will be a positive impact on people’s awareness and level of preparation for retirement.”

Exchanges at center stage

At first glance, 2011 might look like a relatively quiet year – a respite between the turmoil of 2010 and the launch of the state health care exchanges in 2014. Not so, warns Janet Trautwein, the National Association of Health Underwriter’s CEO. “The issues that are coming up in 2014 involve items that need to be prepared for long in advance, especially the exchanges,” she says.

HHS already has a whole team of people working on preparing for the exchanges, Trautwein notes. In large part the action will shift to the states next year. State legislatures will have to decide what sort of structure they will have, and then pass legislation creating the exchanges. State officials face a requirement in 2013 to notify HHS about how the exchanges will work in each state – which means they must have passed something by then. Further complicating matters, some state legislatures only meet every other year, Trautwein notes.

As a result, NAHU will be active on three fronts in 2011 – continuing to work with HHS and Treasury officials to shape regulations, circling back to Capitol Hill to work with the new Congress, and reaching out to officials in all 50 states. To cope, NAHU has added extra staff, and state chapters have hired lobbyists in each state. Says Trautwein: “We’re staffed up and ready to go, but it’s going to be a lot of work.”

The average producer is very nervous about things like what it means to go into an exchange and what the viability is long-term, according to American General’s John Penko. “As a carrier, we are continuing to stay abreast of these changes and developments, communicate to our distribution partners about how we see the current climate and what it takes to be in compliance, and try to provide them our information so they can do some planning with regard to their business operations.

“We’ve communicated to our broker partners that even within exchanges there is opportunity for them to navigate their clients through those exchanges.”

Aflac’s Agypt anticipates the potential for growth once the exchanges start up. “Major medical will become more homogenous, and we think that employers will be even more interested in supplemental coverage as a result,” Agypt says.

But the situation will remain very fluid, Penko believes. “There will be changes as we go,” he says. “A lot of people anticipate that there will be some major modifications to the legislation in this next Congress, but I’ve learned that you can’t bank on that.”

Action on Capitol Hill

In the wake of the midterm elections, the biggest wild card of 2011 may be the impact of a new Congress. Says NAHU’s Trautwein, “In the House, they’re going to want to fulfill their campaign promise and pursue repeal-and-replace legislation. But there just aren’t enough votes for it to go anywhere after the House passes it. I’m hopeful that then they’ll take a look at some targeted legislation, because there are some things [in PPACA] that need to be modified,” such as the individual mandate, says Trautwein.

Rise of advisory services

According to Agypt, today it’s even more important for brokers to step into the adviser role, which he defines as “showing clients how to integrate the whole package of benefits that are available today and how to survive today’s economy.” Brokers and consultants are taking a more holistic approach, as Agypt sees it, and addressing four main areas: health care reform, group products, voluntary products and education.

“Five or 10 years ago a broker could be good at one of those things and make a great living,” Agypt believes. “Today, brokers have to be good at all four of those things. Frankly, those who don’t understand that will probably be left by the wayside.

“That’s why the larger brokerages have an advantage. We see the smaller houses competing by bringing other partners in, giving them some of the same skill sets as the larger brokerages but without the cost,” Agypt says.

As far as organic growth goes, Brinson, who is United Benefit Advisors’ Board chairperson, likes what she has seen this year. “We don’t have final data on 2010 yet, but I’m going to speculate that many [UBA] firms are growing organically quite well,” she says. “They have focused their attention in 2010 not so much on acquisition activity, but on growing their agencies organically” in an effort to offset the loss of revenue. “I also think that competition is getting fiercer,” says Brinson. “All of our agencies are competing for business at a much higher level.”

Looking forward to 2011, though, Brinson still foresees a “vibe of uncertainty.” In addition to the potential impact of the MLR restrictions on commissions, she says, “There’s a question out there about what insurance companies are doing to ‘tier’ agents, and whether or not the bottom producers will be terminated and let go.” That may spur increased merger and acquisition activity, she believes.

And finally, Brinson says, there are “the folks who are owners in their late fifties and early sixties and who may have thought they would just continue working in this industry indefinitely. But now, they’re wondering if they are willing to weather the storm created by health care reform.”

Many of them are thinking that this might be the ideal time to exit the business, according to Brinson. “I suspect there are two camps,” she says. “There’s the camp saying, ‘I don’t know if I have the energy and desire to weather this storm,’ and then there are other firms who are absolutely putting on their battle gear and really focusing on reinventing their business to ensure as best they can that they will survive.”