New Update: Healthcare Costs Increasing by Over 60% in Some States. Will you be impacted?

Investing Insights for Arconic Employees: The Pros and Cons of Dollar-Cost Averaging vs. Lump-Sum Contributions

Healthcare Provider Update: Healthcare Provider for Arconic Arconic, a leading provider of aluminum and aerospace products, collaborates with various insurance companies to offer healthcare benefits to its employees. The primary healthcare providers that partner with Arconic vary by location and include well-known insurers like UnitedHealthcare, Aetna, and Blue Cross Blue Shield, among others. Healthcare Cost Increases in 2026 In 2026, healthcare costs are expected to rise significantly, impacting employers and employees alike, including those at Arconic. The projected average increase in health benefit costs could reach nearly 8.5%, attributed to a perfect storm of higher medical expenses and the potential expiration of enhanced federal premium subsidies from the Affordable Care Act (ACA). Many employers are responding by considering changes to plan designs that shift more costs to employees. This could lead to out-of-pocket premium increases that may exceed 75% for a large portion of the workforce, making it critical for companies like Arconic to strategize their healthcare offerings effectively to mitigate financial impacts on their employees. Click here to learn more

The Value Series

What is Book Value?

Testing

Weighting

The Brandes Research Institute

About The Retirement Group

Sources

The Value Series

Given the current elevated market volatility, we think now is a good time to revisit important value metrics in our four-part series. As an employee or retiree of Arconic, who likely has little market analysis experience, we understand that the valuation process can seem confusing. However, we are here to tell you that the valuation process does not have to be complex to be successful. Simple valuation techniques such as the price-to-book ratio are generally easy to use and have been proven to be effective if utilized correctly. Investors are often looking for ways for their clients to beat the market. If you're one of those investors, you may want to consider the following strategy that has been implemented by the investment greats. Some value investors have historically beat the average annualized returns of the S&P 500, and many have successful track records spanning several decades to prove it. Arconic employees, it is important to be knowledgeable regarding tactics used by famous investors such as Warren Buffett, Benjamin Graham, David Dodd, Charlie Munger, Christopher Browne and Seth Klarman. The investment style implemented by these professionals focus on four metrics that characterize a value investment. These four metrics include the Price to Earnings Ratio, the Price to Cash Flow Ratio, High Dividend Yield and the Price to Book Ratio. These metrics, as you will see, are strong indicators of undervalued security. If undervalued security is brought back to fair value then we would see positive returns on that security. For Arconic employees, it is possible to utilize these metrics to better position yourself in the market for heightened returns. We will examine the effect of investing based off of certain characteristics and how their investment returns are correlated. Today, I want to end the four-part TRG Value Series with the granddaddy of metrics, the Price-to-Book value ratio (P/B).

What is Book Value?

Book value is preferred by many value investors to cash flow and earnings metrics because it is more stable year-to-year whereas cash flow and earnings can vary greatly. This is an important property for those at Arconic to look out for due to the following reason: When a business at a cyclical trough with diminished cash flow and earnings might look expensive on the basis of price-to-cash flow or price-to-earnings, that same business may appear cheap on the basis of price-to-book value. This is because book value won’t fall much or at all in a downturn, and vice versa. Thus, the argument goes, the price-to-book value gives a more reliable picture of a company’s usual business performance, which Arconic employees can use to elevate their investment decisions and investment performance. Benjamin Graham popularized the indicator in his books “Security Analysis” and “The Intelligent Investor”. Nobel Prize winner Eugene Fama and his research partner Kenneth French used the ratio in their three- and five-factor models to describe stock returns. Professor Joseph Piotroski uses the ratio as the only valuation measure in his F-Score methodology.

Testing

We understand the importance of data driven research for Arconic employees and retirees. Set out below are the results of two Fama and French backtests of the book value-to-market equity (the inverse of the PB ratio) data from 1926 to 2013. As of December 2013, there were 3,175 firms in the sample (Carlisle-PB, P2). The value decile contained the 459 stocks with the highest earnings yield, and the glamour decile contained the 404 stocks with the lowest earnings yield.

The average size of the glamour stocks is $7.48 billion and the value stocks are $2.54 billion. (Note that the average is heavily skewed by the biggest companies. For context, the 3,175th company has a market capitalization today of $404 million, which is smaller than the average, but still investable for most investors). Portfolios are formed on June 30 and rebalanced annually. When accounting for this backtest, Arconic employees may recognize how two portfolios are weighted by market capitalization, which means that bigger firms contribute more to the performance of the portfolio, and smaller firms contribute less. Here, we can see that the value decile has comprehensively outperformed the glamour decile, returning 12.6 percent compounded (17.7 percent in the average year) over the full period versus 8.6 percent for the glamour decile (10.9 percent in the average year) (Carlisle-PB, P3).

These returns are considerably lower than the returns found for the price-to-earnings and cash-flow ratios discussed earlier. Despite the irregularity, Arconic employees must be aware that the earnings and cash flow back tests ran back to only 1951, and the book value return data begins in 1926. The difference is due to the 1929 crash, which had an oversized impact on returns. The impact of the crash is visible on the chart; it took twenty years for the value decile to fully recover. Arconic employees must also note how something similar has happened to the glamour decile since 2000; it hasn’t grown in 13 years. To make a comparison possible of the book value’s performance to the performance of earnings and cash flow over the same period, I also measured the returns beginning in 1951. Since 1951, the low P/B value decile has generated a compound annual growth rate (CAGR) of 15.0 percent and an average annual return (AAR) of 17.9 percent. Over the same period, the glamour decile returned a CAGR of 9.6 percent and an AAR of 12.6 percent (Carlisle-PB, P5). These returns are approximately the same as the returns generated by the low P/CF and P/E studies over the same period.

In their study, they found that the quintile of the lowest P/E stocks significantly outperformed the high P/E quintile. The portfolio containing the lowest P/E stock returned 11.61% annualized compared to 4.83% for the highest P/E portfolio and 7.55% for the used universe of stocks. The graph below shows how the cumulative returns compare (it’s not even close). Arconic employees can utilize this information to avoid investing in underperforming assets and better predict economic trends that translate into higher ROI.

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Weighting

It is important for employees and retirees of Arconic to understand how market capitalization-weighted returns are useful for demonstrating that the outperformance of value over glamour is not due to the value portfolios containing smaller stocks. Unless you’re running an index (or hugging an index), they’re not really meaningful. The easiest portfolio weighting scheme is to simply equally weight each position. (If we’re prepared to put up with a little extra volatility for a little extra return, we can also Kelly weight our best ideas). Kelly Weighting is determined by the Kelly Criterion which is a formula used to determine what percentage of their capital should be used in each trade to maximize long-term growth. There are two key components to the formula (Kelly % = W- [(1 - W) / R]): the winning probability factor (W) and the win/loss ratio (R). The winning probability is the probability a trade will have a positive return. The win/loss ratio is equal to the total positive trade amounts divided by the total negative trading amounts. The result of the formula will tell investors what percentage of their total capital they should apply to each investment. By utilizing the Kelly Weighting, investors employed or retiring from Arconic can have a better grasp of their exposure to each individual asset in their portfolio and make informed decisions regarding their asset allocation.

Arconic employees should also account for the equal weight return statistics for book value. In the equal weight backtest, the value generated a 20.2 percent compounded return (27.3 percent on average), beating out glamour’s 6.3 percent compounded return (10.4 percent on average) (Carlisle-PB, P10). Since 1951 the equally weighted P/B value decile has generated a compound annual growth rate (CAGR) of 20.0 percent and an average annual return (AAR) of 25.4 percent (Carlisle-PB, P11).

Over the same period, the glamour decile returned a CAGR of 6.4 percent and an AAR of 10.8 percent. These returns are close to the same as the returns generated by the low P/CF and P/E studies over the same period. When accounting for this information, Arconic employees must recognize that the value portfolios outperformed because they bought more book value per dollar invested than the glamour portfolios: 4.57x on average versus 0.25x in the glamour portfolios (Carlisle-PB, P12). In the equal-weight portfolios, value has significantly outperformed glamour since 1999, beating it by an extraordinary 15.9 percent compounded, and 16.1 percent in the average year (Carlisle-PB, P13).

The Brandes Research Institute

Because we understand just how important data-driven solutions are for our Arconic employees and retirees, we have provided another study, which discusses the P/CF ratio. In a Brandes Research Institute study, Exhibit 6 below illustrates the global all-cap findings across three price metrics.

The results confirmed a consistent value premium across all metrics. We will focus on the P/CF ratio and the outperformance in the decile 10 value stocks. The smallest outperformance between decile 1 glamour stocks and decile 10 value stocks can be observed with the P/B measurement, where the average outperformance was 7.1% (Brandes, p. 8).

About The Retirement Group

The Retirement Group is a nation-wide group of financial advisors who work together as a team.

We focus entirely on retirement planning and the design of retirement portfolios for transitioning corporate employees. Each representative of the group has been hand selected by The Retirement Group in select cities of the United States. Each advisor was selected based on their pension expertise, experience in financial planning, and portfolio construction knowledge.

TRG takes a teamwork approach in providing the best possible solutions for our clients’ concerns. The Team has a conservative investment philosophy and diversifies client portfolios with laddered bonds, CDs, mutual funds, ETFs, Annuities, Stocks and other investments to help achieve their goals. The team addresses Retirement, Pension, Tax, Asset Allocation, Estate, and Elder Care issues. This document utilizes various research tools and techniques. A variety of assumptions and judgmental elements are inevitably inherent in any attempt to estimate future results and, consequently, such results should be viewed as tentative estimations. Changes in the law, investment climate, interest rates, and personal circumstances will have profound effects on both the accuracy of our estimations and the suitability of our recommendations. The need for ongoing sensitivity to change and for constant re-examination and alteration of the plan is thus apparent.

Therefore, we encourage you to have your plan updated a few months before your potential retirement date as well as an annual review. It should be emphasized that neither The Retirement Group, LLC nor any of its employees can engage in the practice of law or accounting and that nothing in this document should be taken as an effort to do so. We look forward to working with tax and/or legal professionals you may select to discuss the relevant ramifications of our recommendations.

Throughout your retirement years we will continue to update you on issues affecting your retirement through our complimentary and proprietary newsletters, workshops and regular updates. You may always reach us at (800) 900-5867.

Sources

What to do with an Early Retirement Ebook
Social Security Ebook
Lump Sum vs. Annuity Ebook
401(k) Rollover Strategies Ebook
Closing the Retirement Gap Ebook
Brandes Institute, The. “Value vs. Glamour: A Long-Term Worldwide Perspective”. 2014. < https://www.brandes.com/docs/default-source/brandes-institute/value-vs-glamour-worldwide-perspective>.
Carlisle, Tobias. “Investing Using the Price-to-Earnings Ratio and Earnings Yield (Backtests 1951 to 2013)”. May 26, 2014. <http://greenbackd.com/2014/05/26/price-to-earnings-ratio-backtest-1951-to-2013/>.
Causeway Capital. “The Compelling Case for Value Stocks”. 2018 https://www.causewaycap.com/wp-content/uploads/2018/02/201802-TheCompellingCaseforValue-1.pdf
Research Affiliates. “To Win with ‘Smart Beta’, Ask if the Price is Right” September 7, 2016 < https://seekingalpha.com/article/4004564-win-smart-beta-ask-price-right>
Tweedy Browne Company LLC. “What Has Worked in Investing: Studies of Investment Approaches and Characteristics Associated with Exceptional Returns.” 1992. <http://www.tweedy.com/resources/library_docs/papers/WhatHasWorkedFundVersionWeb.pdf>.
Yuan, Vera. Guru Focus. “Earnings, Free Cash Flow, Book Value? Which Parameters Are Stock Prices Most Correlated To?”. August 2, 2013. < http://www.gurufocus.com/news/225255/earnings-free-cash-flow-book-value-which-parameters-are-stock-prices-most-correlated-to->.
Fama and French Backtesting http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html

What retirement benefits and options are available to employees of Arconic Corporation under the Arconic Corp. Pension Plan A, and how do these benefits change based on factors such as age, service length, and retirement category? Employees of Arconic Corporation should understand their eligibility requirements for normal retirement, early retirement, and disability benefits as outlined in the company's pension plan documentation.

The Arconic Corp. Pension Plan A provides retirement benefits based on a formula that considers average earnings and service length, with normal retirement eligibility at age 65 and at least five years of service. Early retirement is available at age 55 with 10 years of service, with benefits reduced based on actuarial assumptions. Disability benefits are available after 10 years of service, and preretirement death benefits offer 50% of accrued benefits to surviving spouses(Arconic Corporation_ Ja…).

How does the frozen state of benefits and service accruals impact current and future retirees at Arconic Corporation? Employees should evaluate how the freeze, effective April 1, 2018, affects their retirement planning and what measures they can take based on their individual circumstances to optimize their retirement benefits.

The frozen state of benefits and service accruals, effective April 1, 2018, means no new service credits or compensation increases are factored into pension calculations for current employees. This freeze affects retirement planning as employees must now rely on frozen benefits and other savings plans to meet retirement needs. It’s important for employees to reassess their financial goals and consider additional investments to optimize retirement benefits(Arconic Corporation_ Ja…).

In what ways can Arconic Corporation employees ensure they meet the requirements for spousal benefits outlined in the pension plan, especially regarding preretirement and postretirement scenarios? Understanding the specifics of eligibility and benefits, such as the surviving spouse benefit calculations, is crucial for employees planning for retirement.

To ensure eligibility for spousal benefits, employees need to meet certain requirements. Preretirement surviving spouse benefits require at least five years of service, and postretirement spousal benefits reduce the participant’s monthly benefit by 5%, with 50% of the reduced amount paid to the spouse if the participant dies first. Employees should understand these provisions to plan for their family’s financial security in retirement(Arconic Corporation_ Ja…).

What are the implications of the actuarial assumptions used by Arconic Corporation in valuing its pension obligations, and how do these assumptions affect the funding of the retirement plan? Arconic Corporation employees should examine how changes in interest rates and mortality tables influence the company's ability to meet its pension obligations.

Actuarial assumptions used in Arconic Corp.’s pension valuations, such as interest rates and mortality tables, directly impact the funding of retirement plans. Changes in these assumptions can affect the pension plan’s obligations and the amount of required contributions, making it important for employees to understand how these factors influence the stability and sufficiency of their retirement benefits(Arconic Corporation_ Ja…).

Can you explain the process by which Arconic Corporation employees can appeal decisions related to their pension benefits, and what support does the company provide during this process? Understanding the proper channels for appeals and the types of documentation required can be vital for employees facing issues with their pension benefits.

Employees can appeal pension benefit decisions through Arconic Corporation’s formal process, which includes submitting an appeal with supporting documentation. The company provides guidelines on what documentation is required, and employees should follow these closely to ensure their case is reviewed thoroughly. The support provided can include detailed responses to clarify benefit calculations and decisions(Arconic Corporation_ Ja…).

What resources are available to Arconic Corporation employees to help them make informed decisions about their retirement benefits, and how can they access these resources efficiently? Employees should know where to find comprehensive materials and support services concerning their retirement plans.

Arconic Corporation offers various resources to assist employees in making informed decisions about their retirement benefits. Employees can access comprehensive plan documents, financial planning tools, and counseling services through the company’s HR department and retirement plan administrators to ensure they fully understand their options(Arconic Corporation_ Ja…).

How does the Arconic Corporation define "average earnings" for calculating retirement benefits, and what methodologies are in place to ensure accuracy in these calculations? Understanding the basis for average earnings will allow employees to better project their pension benefits and prepare for retirement.

Average earnings, used in calculating retirement benefits, are defined as the average of the five highest consecutive calendar years of compensation within the last ten years for most participants. For certain participants, different rules apply based on service and plan conditions. Employees can review their earnings history to ensure accurate calculations and projections for retirement planning(Arconic Corporation_ Ja…).

What criteria does Arconic Corporation use to determine eligibility for deferred vested benefits, and how can employees maximize their advantages in this area? Employees need to be aware of the vesting schedule and how to plan for potential career transitions while maintaining their benefits.

Eligibility for deferred vested benefits in Arconic Corporation’s plan requires five years of service, and benefits can commence as early as age 55, with reductions based on actuarial calculations. Employees should plan career transitions carefully to maximize their vested benefits, especially when considering leaving the company before retirement(Arconic Corporation_ Ja…).

How can Arconic Corporation employees prepare for the potential tax implications of their pension benefits upon retirement, especially in light of IRS regulations for 2024? Being informed about tax strategies related to retirement income can significantly enhance retirees' financial wellbeing.

Employees preparing for retirement should understand the tax implications of pension benefits, particularly in light of IRS regulations for 2024. Strategies such as tax deferral and proper timing of distributions can help minimize the tax burden on retirement income, significantly enhancing financial outcomes(Arconic Corporation_ Ja…).

What contact methods does Arconic Corporation provide for employees wishing to learn more about their pension plan details, and how can employees best utilize these methods to get their queries resolved? Understanding the effective ways to communicate with the company for assistance is key for employees navigating their retirement benefits.

Arconic Corporation provides multiple contact methods for pension-related inquiries, including direct access to HR representatives and pension plan administrators. Employees are encouraged to utilize these resources effectively by preparing questions in advance and keeping detailed records of their communications for follow-up and clarity(Arconic Corporation_ Ja…).

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.

Arconic has announced a major restructuring plan that includes significant layoffs across its North American facilities. The restructuring is aimed at streamlining operations and reducing costs amid ongoing economic uncertainties. Additionally, Arconic is revising its pension and 401(k) benefits in response to shifting market conditions and regulatory changes.