GRS Releases Research Memo on Maximum Deferral and Threshold Limits for 2016 and 2017

On November 2, 2016, GRS released its research memorandum, Maximum Deferral and Threshold Limits for 2016 and 2017. This research memorandum summarizes the Internal Revenue Service’s (IRS) new maximum deferral and threshold limits effective for limitation years beginning on or after January 1, 2017. The Internal Revenue Code (IRC) establishes a number of limits on retirement plan benefits and contributions. The limits are located in various sections of the Code and often apply in different ways to private and public-sector plans. Generally, plans must comply with the limits to maintain their tax-qualified status.

This GRS Research Memorandum is available here.

NASRA Updates Issue Brief on State Hybrid Retirement Plans

In November 2016, the National Association of State Retirement Administrators (NASRA) released its issue brief State Hybrid Retirement Plans, which updates an earlier version published in September 2015.  The brief provides new information on public-sector retirement systems that have established hybrid plans since the previous version was released.  While the majority of public employee retirement systems are traditional defined benefit plans, some public-sector plans are considering hybrid plans that contain elements of both defined benefit (DB) and defined contribution (DC) plans.

The brief examines two types of hybrid plans: 1) cash balance plans that combine elements of a traditional DB plan and individual accounts into a single plan; and 2) “DB+DC” plans that combine a smaller traditional DB pension plan with separate individual DC retirement savings accounts.

In addition, the updated brief features a map that illustrates the percentage of public employees who participate in mandatory or optional hybrid plans in states that administer such plans for groups of general, public safety or K-12 educational employees.

The brief also provides overviews of cash balance and DB+DC plans that have been established in various states, with some dating back several decades.  According to the brief, public-sector hybrid plans have diverse combinations of retirement plan designs to address the cost and risk factors of various state or local governments.  However, most continue to include features that meet fundamental retirement plan objectives including: mandatory participation, shared financing, professionally managed pooled investments, benefit adequacy and lifetime benefit payouts.  Typically, traditional public-sector DB plans that contain hybrid plan elements include benefits or employee contributions that are linked to the plan’s investment performance or actuarial condition.

As of March 2016, the U.S. Department of Labor’s Bureau of Labor Statistics reported that less than 50% of the private-sector workforce participates in employer-sponsored retirement plans.  By comparison, nearly all state and local government workers have mandatory retirement plan participation.

The brief is available here.

NASBO Releases State Expenditure Report for Fiscal 2014-2016

On November 17, 2016, the National Association of State Budget Officers (NASBO) released its State Expenditure Report: Examining Fiscal 2014-2016 State Spending. This annual report examines spending in the various areas of state budgets including: elementary, secondary and higher education; public assistance; Medicaid; corrections; transportation; and other areas.  It also includes data on the State Children’s Health Insurance Program and revenue sources in state general funds.

The key findings include:

In fiscal year 2016, the total state spending growth rate (including general funds, other state funds, bonds and federal funds) slowed by an estimated 4.0% following a 10-year high in fiscal year 2015 of 6.9%.

  • In both fiscal years 2015 and 2016, transportation experienced the highest spending growth from state funds while Medicaid experienced the largest gains from all funds.
  • Education spending for K-12 remained the largest category from state funds. States allocated about 35% of their general fund spending to elementary and secondary education and nearly 10% for higher education.
  • Medicaid was the second largest category for state general fund spending at 20.3%. Medicaid also continued to increase as a share of total state spending (up 6.9%) due to increased federal funds resulting from the first full-year of Medicaid expansion under the Affordable Care Act (ACA).
  • Revenue growth slowed substantially since states had reduced collections with corporate income taxes declining 5.8%, sales taxes increasing 3.2% and personal income taxes increasing 2.9%.

The report concluded, “States will continue to work to ensure that budgets are structurally balanced and sustainable, while contending with increased spending demands, pressures from long-term obligations, volatility in state revenues, uncertainty surrounding federal fiscal policies, and moderate economic growth.”

The report is available here.

Health Care Cost Institute Reports U.S. Health Care Spending Grows Nearly 5% in 2015

On November 22, 2016, the Health Care Cost Institute (HCCI) released its 2015 Health Care Cost and Utilization Report. The report examines trends in health care prices, utilization and spending for individuals younger than age 65 covered by employer-sponsored health insurance.  According to the report, health care spending increased in 2015 by 4.6% for privately insured individuals primarily due to higher costs for prescription drugs, emergency room (ER) visits and hospitalizations.

The report’s key findings include:

  • In 2015, health care spending averaged $5,141 per individual, up $174 from 2014;
  • Out-of-pocket spending (including deductibles, copays and coinsurance) increased 3.0%, averaging $813 per capita;
  • Spending on prescription drugs grew more rapidly than spending on any other health care service, with an increase of over 11% for brand-name prescriptions (reaching $649 per capita) and about 3% for generic drugs (reaching $313 per capita);
  • Although the number of ER visits continued to decline in 2015, the cost per ER visit increased significantly by 10.5%, averaging $1,863;
  • Use of outpatient care and professional services (i.e., doctor visits and lab tests) rose slightly; and
  • Prices for outpatient, inpatient, professional services, and prescription drugs increased between 3.5% and 9.0% in 2015.

The report was based on HCCI’s examination of approximately 3.7 billion insurance claims for about 40 million Americans covered by employer-sponsored health insurance per year, which accounted for about 26% of the nation’s privately insured population in 2015.

The report is available here.