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Posts Tagged ‘Genny Sedgwick’

Top 10 Milliman blogs items for 2013

December 19th, 2013 No comments

Milliman publishes blog content addressing complex issues with broad social importance. Our actuaries and consultants offer their perspective on healthcare, retirement plans, regulatory compliance, and more. The list below highlights Milliman’s top 10 blogs in 2013 based on total pageviews:

10. In their blog “Five keys to writing a successful qualified health plan application,” Maureen Tressel Lewis and Bonnie Benson highlight several best practices insurers should consider when submitting a qualified health plan application to the Health Insurance Marketplace.

9. “Understanding ACA’s subsidies and their effect on premiums” offers perspective into the relationship between healthcare premiums and federal subsidies for low-income individuals.

8. Funding for future Consumer Operated and Oriented Plans(CO-OPs) was eliminated as a result of the fiscal deal that was signed in December 2012. Tom Snook takes a look at how the deal affects CO-OPs in his blog “CO-OPs: An endangered species?

7. Robert Schmidt discusses why the methodology used to determine COBRA premium rates is essential in his blog “The growing importance of COBRA rate methodologies.”

6. A second blog by Maureen Tressel Lewis and Mary Schlaphoff entitled “Five critical success factors for participation in exchange markets” highlights tactics that insurers offering qualified health plans may benefit from implementing.

5. “Pension plans: Key dates and deadlines for 2013” offers Milliman’s three retirement plan calendars (defined benefit, defined contribution, and multiemployer) with key administrative dates and deadlines throughout the year.

4. In her blog “Fee leveling in DC plans: Disclosure is just the beginning,” Genny Sedgwick explains how investment expenses and revenue sharing affect the fees paid by defined contribution plan participants.

3. Maureen Tressel Lewis and Mary Schlaphoff’s blog “Five common gaps for exchange readiness” describes items issuers of qualified health plans have to resolve before their plans can be sold on the Health Insurance Marketplace.

2. In the lead up to implementation of the Patient Protection and Affordable Care Act (ACA), debate often centered on how the law would affect healthcare premiums. Our “ACA premium rate reading list” offers perspective on how rates may be affected.

1. In his blog “Retiring early under ACA: An unexpected outcome for employers?,” Jeff Bradley discusses the impact that the ACA could have on both early retirees and plan sponsors.

This article was first publish at Milliman Insight.

Fee disclosure regulations prompt changes in plan sponsor approach

June 10th, 2013 No comments

This PlanSponsor article quotes Genny Sedgwick discussing how fee disclosure regulations have affected changes in the way businesses approach fee transparency.

Here is an excerpt:

Even for companies that had full transparency before fee disclosure regulations, 408(b)(2) and 404(a)(5) still prompted change in their businesses.

Genny Sedgwick, principal at Milliman, said during a panel at the 2013 PLANSPONSOR National Conference that although her company’s entire book of business already had fee transparency, fee disclosure regulations spurred more education initiatives. In educating plan sponsor committees about fee disclosure, the outcome included investment changes. “There were a lot of changes in the fund menu,” Sedgwick said.

More index funds were also added to plan menus, she added, anticipating that participants would ask for lower-cost investments following fee disclosure.

Overall, Sedgwick said Milliman welcomed fee disclosure because it leveled the playing field by requiring more transparency across the industry.

In this blog, Genny explains the relationship between defined contribution plan fees and investment expenses. She also gives perspective on the concept of revenue sharing.

For more perspective from Genny, click here.

Fee leveling in DC plans: Disclosure is just the beginning

April 3rd, 2013 No comments

This blog summarizes a presentation given by Genny Sedgwick at the Mid-Sized Retirement & Healthcare Plan Management Conference in San Francisco.

We’ve talked a lot about fees in defined contribution (DC) retirement plans lately: the disclosure regulations effective in 2012 have caused quite a stir, and for good reason. For plan fiduciaries, ensuring that retirement plan fees are reasonable and fair is a fiduciary duty, and understanding plan fees can have a significant impact on retirement savings for participants.

For example, if a participant’s retirement investments or account is overpriced by one-quarter of 1% (25 basis points), and the participant has $5,250 in total contributions annually for 40 years, then that participant will have overpaid $40,056 in fees!

But simply knowing the base amount or formula stated by the recordkeeper is often not sufficient to truly understand the impact of fees in a retirement plan. It’s also essential for plan sponsors to consider the different types of fees that occur in retirement plans: plan-level service fees, participant-level service fees, and investment fees. These fees interplay in ways that can have dramatically differing effects from participant to participant.

In order to understand retirement plan fees, it’s important to understand investment expenses and the concept of revenue sharing. Each investment option has an expense ratio, which may contain two major fee components: an investment management fee that varies based on the attributes of the fund or its manager, and a shareholder service fee, which is often paid indirectly to the plan’s service provider(s) in a process called revenue sharing. Expense ratios can vary substantially from fund to fund within a plan, so participants pay different amounts of investment expenses based on their allocations among those funds. Revenue sharing further complicates the matter because not all investment options have a shareholder service component, and those that do have different rates and policies.

Revenue sharing can be normalized among participant accounts in the plan through a process called fee leveling, wherein revenue sharing is allocated back to participant accounts on a per capita or pro rata basis, or back to the participants who held the funds that generated the revenue sharing. However, not all recordkeepers can administer all of these options.

Another issue to consider is who should pay the plan fees that exceed the amount of revenue sharing generated by the plan. Some employers choose to pay these fees, while some assess them to participant accounts, in which case they must decide whether to allocate those “hard” costs pro rata or per capita. Pro rata cost allocations protect smaller account balances, while per capita allocations protect larger account balances.

What’s right for your plan? As the plan sponsor, it’s your choice, but given the implications for fiduciaries and the impact on the retirement readiness of participants, it’s important to understand the options, consider what’s best for your plan, and document your decision.

Can a targeted retirement communications strategy hit the bullseye?

March 18th, 2013 No comments

A targeted approach is the most effective communications strategy an employer can implement to help employees understand their retirement plans. Milliman’s Denise Foster and Genny Sedgwick offer perspective on the benefits such a tailored communications approach can have on plan participants in this Business Insurance article (subscription required).

Here is an excerpt:

Most American workers aren’t saving enough toward retirement because they are struggling financially — often living paycheck to paycheck — and do not have the discretionary cash needed to build a retirement nest egg, experts say.

A good retirement communications and education program recognizes this and offers plan members help with such financial fundamentals as budgeting and saving.

The most effective way to communicate these lessons is with a targeted approach that takes into consideration plan members’ ages and other demographic characteristics. The messaging also should be continuous, occurring throughout the year, experts advise.

…“One of the best approaches is a real targeted one,” said Denise Foster, a principal and communications consultant at Milliman Inc. in Seattle. “It’s a lot about tailoring the message to the particular employee group…”

“In financial services, we use a lot of terms that don’t resonate with participants, and they shut down and stop learning,” said Genny Sedgwick, a principal and practice leader for defined contribution plan record-keeping at Milliman Inc. in Seattle. “People feel like they need to be the expert, and they realize they’re not. At the end of the day, participants just want you to guide them.”

To learn more about effective employer-to-employee communication strategies, read this article by Denise Foster, Sharon Stocker, and Heidi tenBroek.

The value of benchmarking your retirement plan

December 4th, 2012 1 comment

As plan sponsors look to 2013, they might consider setting aside some of their retirement plan budgets to benchmark various aspects of their plan designs, vendors, and processes in order to ensure that their plans are competitive, compliant, and providing value to each company and its employees.

Many industry experts recommend benchmarking defined contribution (DC) plans every three years to ensure they are receiving the same pricing and product offerings that any new client would receive. Do you have a dated legacy product? If so, this could be a good time to benchmark your plan.

Remember, ERISA imposes high standards—“the highest known to law”—upon fiduciaries. Section 404(a) of ERISA provides that fiduciaries must elicit information necessary to assess not only the reasonableness of the fees to be paid for services, but also the qualifications of the service providers and the quality of the services that will be provided. Benchmarking your plan can help ensure that the fees you and your participants are paying are reasonable and commensurate with the services received, and will help to protect against public embarrassment and legal hassles.

But benchmarking is not just about fiduciary protection. Fees and plan design features have a huge impact on retirement savings for participants, contributing not only to the success or failure of their retirement readiness, but also to the value of a company’s retirement plan as an employee recruitment and retention tool.

Benchmarking a plan can be performed in many different ways, including issuing a request for proposal (RFP). Conducting an RFP can result in a thorough review of plan(s) and service providers, with the search consultant providing added value by educating plan sponsors on how to be smart consumers in the retirement plan marketplace. However, this can be an expensive and time-consuming process requiring internal resources, typically senior staff.

As a first step, you might consider having a recordkeeper or investment advisor run a benchmarking report from an independent benchmarking company such as Fiduciary Benchmarks, Inc., BrightScope, Plan Tools, or Advisor Labs Retirement Plan Diagnostic. Each of these companies can produce a nice executive summary diagnostic report, which can be very useful in evaluating plans and negotiating with vendors.

Whichever tactic you choose, it’s important to consider the following in order to maximize the benefits of benchmarking your plan:

• Use up-to-date, accurate, and consistent plan data. Apply this rule to collect and examine the plan fees in the benchmark group as well.
• Compare the plan in a relevant context: Plans of similar size, type, design, location, and industry.
• Don’t forget to consider the value provided! It can be reasonable to pay higher fees if a plan is receiving more or higher-quality services or is attaining higher participant success measures than similar plans.

Regular benchmarking of retirement plan costs and performance can go a long way to protect a plan’s fiduciaries and participants.

What to look for in 2012: Lump-sums

April 18th, 2012 No comments

Defined benefit plans: Lump sums
Speaking of de-risking strategies, another idea that may gain more traction in 2012 is payment of lump sums from defined benefit (DB) plans. This year, 2012, marks the first year that the 417(e) interest rate required to calculate the minimum present value of a DB pension is equal to the interest rate used to calculate its liability for Pension Protection Act (PPA) minimum funding purposes (ignoring the 24-month averaging). In the past, the lump sum was based in part on 30-year Treasury rates, which often resulted in the payout of lump-sum amounts greater than the corresponding liability funded for in the plan’s funding target. With this no longer the case, the settlement of lump sums might be an attractive way to eliminate longevity risk from DB plans. Alas, the buyer must beware. The introduction of lump sums into a plan that otherwise had no accelerated forms of payment could lead to some unwelcome news should the plan ever fall below certain funding thresholds that introduce the sponsor to the world of benefit restrictions. Additionally, the other subtle point to consider is that just because the PPA requires the valuing of liabilities using corporate bond rates doesn’t mean a sponsor has to equate that to their idea of the true liability on the books. To the extent a sponsor is confident the plan’s asset mix will generate long-term returns on average in excess of corporate bond rates, lump-sum settlements are arguably still expensive and represent a lost opportunity cost. As is the case with almost any financial strategy, it’s all about the risk appetite.

To end this series, we’ll look at defined contribution (DC) plans.

What to look for in 2012: De-risking

March 27th, 2012 No comments

Defined benefit plans: De-risking
Given the highlighted areas of concern already discussed, it’s likely that plan sponsors will look ever harder at the idea of de-risking their plans in 2012 and onward. The volatility of worldwide markets has been dubbed the “new normal” by many economic minds. Smoothing mechanisms are losing favor in the financial world, and the International Accounting Standards Board (IASB) has already moved toward a more mark-to-market structure, with the Financial Accounting Standards Board (FASB) likely not far behind. Sponsors have already been “encouraged” by the Pension Protection Act of 2006 (PPA) to take on less risk in their pension portfolios, and now the accounting world is joining in on the push. When you further consider the world of pain that comes with benefit restrictions under the PPA and the ramifications of being at-risk, not to mention higher Pension Benefit Guaranty Corporation (PBGC) premiums the more underfunded a plan is, it stands to reason that employers should be very attracted to pension risk management more so than ever.

Liability-driven investment (LDI) strategies have been one popular approach to mitigate risk by reducing the exposure to the most volatile assets in a portfolio, instead concentrating investments in assets that act more like liabilities, namely long bonds. However, the cost of implementing an LDI strategy is high right now because current yields on bonds are so low. Also, there is still a lost opportunity cost with regard to the impact on financial statements, at least with U.S. GAAP anyway.

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What to look for in 2012: Financial statements

March 12th, 2012 No comments

The impact of low interest rates on defined benefit (DB) pension plans not only leads to higher contribution requirements but also to an increased squeeze on corporate earnings. Under current U.S. GAAP guidelines, large losses in the funded status of a pension plan (whether because of asset returns less than expected or liability increases that are due to lower interest rates) accumulate on the balance sheets through other comprehensive income (OCI). In most cases, these losses are slowly realized through earnings over time. Absent significant increases in asset returns or interest rates over the next few years, corporate earnings for DB plan sponsors will continue to drag from the gradual recognition of the losses that led to the current, historically high underfunded statuses.

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What to look for in 2012: Discount rates

March 12th, 2012 No comments

As we are now under way with the 2012 calendar year, it’s time to look at the issues we expect to generate heavy interest during the year. For one thing, the federal deficit has attracted a lot of attention lately and will likely continue to do so. The upcoming presidential election is likely to feature plans on reducing deficits, and these plans will undoubtedly reach the world of employee benefits in some fashion. In addition, the economic environment of recent times, both globally and locally, has been unstable to put it kindly. Pressure on employee benefit plan sponsors is coming from a lot of different directions. In this series, we look at a few of the potential headliners that may affect defined benefit and defined contribution plans in 2012.

The year that just passed saw some extraordinary events take place. Those that are unforeseen are what make predictions impossible, complicating matters and leaving their mark on the global economy and political landscape. The European debt crisis, political revolutions, an earthquake and tsunami in Japan, and the downgrade of U.S. debt, to name just a few, were major events that dictated the direction of economic and regulatory policies. What will 2012 hold? First, we’ll look at defined benefit (DB) plans.

Defined benefit plans: Discount rates
First and foremost on the minds of defined benefit sponsors are interest rates. How low can they go? It seems like DB plans have already circled around the limbo stick of interest rates several times and are now faced with rates so low that not even the retirement plan of double-jointed contortionists could slide under without buckling. Bend don’t break has been the unfortunate reality for DB sponsor’s balance sheets and funding requirements. The rate on the Citigroup Pension Liability Index, a common benchmark used to discount pension liabilities, hit a record low in December of 4.40%. That was the lowest rate reported by the index in its history.

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Retirement plans: What to look for in 2012

March 1st, 2012 No comments

We take a look at the year ahead for retirement plans, as Tim Connor and Genny Sedgwick offer their perspective on what to look for in 2012. Some of the challenges facing these plans—such as asset volatility and the effect low interest rates are having on pension liabilities—have become all too familiar to plan sponsors. But there are also new concerns, such as the phase-in of a fee disclosure rule for defined contribution plans and the march toward common worldwide accounting standards for defined benefit plans.

The full article, “Retirement plans: What to look for in 2012,” is available here.