Robert Nordin, Bonnie Wurst, and Sue Gigler will be at the GRS exhibit booth April 29-April 30, 2019 at the Sheraton Gunter in San Antonio, Texas. Conference attendees visiting the booth can learn more about GRS’ church pension plan expertise and defined benefit plan administration services.
On April 22, 2019, the Social Security Board of Trustees released its annual report on the program’s financial and actuarial status. In 2018, Social Security paid nearly $989 billion in benefit payments to about 63 million beneficiaries. According to the report, the combined assets of the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds are projected to be depleted in 2035 (one year later than projected last year). Should this occur, Social Security would be able to pay only 80% of scheduled annual benefits after 2035 through the end of the projection period in 2093.
Furthermore, the OASI Trust Fund is projected to be depleted in 2034 (the same as last year’s estimate) with 77% of benefits payable at that time. However, the trustees dramatically revised their estimates for the lifespan of the DI Trust Fund. The DI Trust Fund is projected to be depleted in 2052 (20 years later than projected last year) with 91% of benefits payable. According to the report, the significant change in the reserve depletion is mainly due to the continuing favorable trends in the disability program. Since 2010, disability applications have been declining and the amount of disabled-worker beneficiaries receiving payments has been decreasing since 2014.
In the past year, the asset reserves of the OASI and DI Trust Funds increased by $3 billion totaling $2.895 trillion. In 2020, the total annual cost of the Social Security program is projected to exceed total annual income for the first time since 1982 and is estimated to remain higher throughout the 75-year projection period. Therefore, asset reserves are expected to decrease in 2020. In addition, Social Security’s cost has exceeded its non-interest income since 2010.
As discussed in the report, interest earned on Social Security’s Trust Fund assets will initially be sufficient to cover the shortfall, but, beginning in 2020 (the same year as projected last year), the special issue U.S. Treasury securities held by the trust funds will need to be redeemed to generate sufficient cash to pay benefits.
The report presents Social Security’s financing shortfall in dollar terms, as well as in percentages of taxable payroll and Gross Domestic Product (GDP). Social Security’s projected actuarial deficit is $13.9 trillion when measured over the next 75 years. Expressed in relation to the GDP, the annual cost of Social Security benefits is projected to increase from 4.9% of GDP in 2019 to 5.9% in 2039, decline to 5.8% in 2052, and slowly rise to 6.0% by 2093. In the 2019 report, changes were made in law, methods, starting values and assumptions which combined to decrease the actuarial deficit by 0.11% of taxable payroll, in addition to other changes affecting Social Security’s financial condition. The net result slightly reduced the 75-year actuarial deficit from 2.84% of taxable payroll in 2018 to 2.78% in 2019.
In 2018, 176 million individuals had earnings covered by Social Security and paid payroll taxes. The cost of $6.7 billion to administer the Social Security program was 0.7% of total expenditures and the combined trust fund reserves earned interest of 2.9%.
On April 22, 2019, the Medicare Board of Trustees released its annual report on the financial status of the Medicare funds. Total annual Medicare expenditures, which were $741 billion in 2018 or 3.7% of Gross Domestic Product (GDP), are expected to grow to 6.5% of GDP in 2093. The report warns that Medicare expenditures are projected to increase in most of the future years at a faster rate than either aggregate workers’ earnings or the overall economy. Total income for the Medicare program in 2018 amounted to $756 billion.
The Medicare program consists of two component programs for the elderly and disabled: Hospital Insurance (HI) and Supplementary Medical Insurance (SMI). The HI program (Medicare Part A) pays primarily for inpatient hospital care and is financed by a payroll tax of 1.45% of taxable earnings. The SMI program consists of Medicare Parts B and D. Medicare Part B is a voluntary program that pays for physician, outpatient hospital, home health, and other services. Medicare Part D is a voluntary program providing access to outpatient prescription drug benefits. Approximately one-quarter of the SMI program is financed by beneficiary premiums, with the remainder financed by transfers from the U.S. Treasury’s general fund.
According to the Medicare Trustees’ report, the long-term financial status of the HI Trust Fund changed with the actuarial deficit increasing to 0.91% of taxable payroll from 0.82% in last year’s report due to: 1) lower assumed productivity growth; 2) slower projected growth in the utilization of skilled nursing facility services; 3) higher costs and lower income in 2018 than expected; 4) lower real discount rates; and 5) other factors. However, the HI Trust Fund is projected to be insolvent in 2026 (the same as projected last year). After the HI Trust Fund is exhausted, payroll tax revenues would cover 89% of the projected HI program expenses in 2026, declining slowly to 77% in 2046, and rising gradually to 83% by 2093.
The financial outlook for the SMI program is better than the HI program. Under current law, each account within SMI is automatically in financial balance. For both Medicare Parts B and D, revenues are projected to equal expenditures for all future years, but only because beneficiary premiums and general revenue transfers must, by statute, be increased to meet expected costs for each year. However, the rapid growth of health care costs is expected to greatly accelerate the need to finance these benefits. SMI costs are projected to grow steadily from 2.1% of GDP in 2018 to 3.7% of GDP in 2038, gradually increasing to 4.2% of GDP by 2093.
Additionally, the report states that “solutions can and must be found to ensure the financial integrity of the HI program in the short and long term and to reduce the rate of growth in Medicare costs through viable means. The sooner the solutions are enacted, the more flexible and gradual they can be. Moreover, the early introduction of reforms increases the time available for affected individuals and organizations…to adjust their expectations and behavior. The Board recommends that Congress and the executive branch work together with a sense of urgency to address these challenges.”
The report is available here.
On April 9, 2019, the Center for Retirement Research at Boston College (CRR) released its issue brief, Maintaining Target Allocations: Effects in Plan Performance. According to CRR, state and local government pension plans manage about $4 trillion in assets for almost 20 million plan participants.
Typically, pension plans set target asset allocations, but allow actual allocations to vary within target ranges. When investment performance causes the asset allocation to diverge from the targets, the chief investment officer is responsible for rebalancing the funds across various asset classes within the target ranges.
The key findings include:
The brief is available here.
In March 2019, the Actuarial Standards Board (ASB) released its second exposure draft of a proposed actuarial standard of practice (ASOP) titled, Setting Assumptions. The proposed ASOP will apply to actuaries when performing actuarial services that require the setting of assumptions for which the actuary is taking responsibility, giving advice on setting assumptions, or assessing the reasonableness of assumptions set by others.
Although certain practice-area assumption-setting standards exist (i.e., ASOP No. 27, Selection of Economic Assumptions for Measuring Pension Obligations and ASOP No. 35, Selection of Demographic and Other Noneconomic Assumptions for Measuring Pension Obligations), disparity still remains in current guidance. To address these gaps, the ASB concluded that it would be useful to issue a standard on setting assumptions for all practice areas that will supplement the current guidance. Consequently, in January 2016, the ASB created a multi-disciplinary task force under the direction of the General Committee to draft a standard on assumption setting for all practice areas.
In December 2016, the ASB issued the first exposure draft. There were 45 comment letters received and considered in making changes that are addressed in the second exposure draft. Some of the most significant changes in the second exposure draft include, among others, revisions to the:
Scope
Definitions
According to the exposure draft, “Setting assumptions includes, but is not limited to, activities that may variously be referred to as developing or selecting assumptions, and may include an analysis of data or experience, industry studies, trends, economic forecasts and other analyses, as appropriate.”
The comment deadline for the second exposure draft is July 31, 2019.
The memo and ED are available here.
On March 29, 2019, the Kaiser Family Foundation (KFF) released its newly updated and expanded Health System Dashboard on the Peterson-Kaiser Health System Tracker (The Tracker) website. The dashboard was compiled by the KFF analysts in consultation with other experts and provides key data on the U.S. health system in four areas:
1) Access and affordability;
2) Health and wellbeing;
3) Health spending; and
4) Quality of care.
Overall, the dashboard features over 50 indicators of health system performance, such as life expectancy, spending by diagnosis, costs and utilization, and percent of workers in high deductible health plans. Dashboard users may investigate historical trends, as well as differences and disparities among various demographic groups.
The Tracker, which is a partnership between KFF and the Peterson Center on Healthcare, monitors the U.S. health system’s performance on key quality and cost measures. The data is compiled from various sources and analyzed by KFF experts. As new information becomes available, the dashboard tool is updated.
In addition, the KFF has provided a companion brief on the Tracker, U.S. Health System is Performing Better, Though Still Lagging Behind Other Countries. The brief presents the dashboard’s data and illustrates the current status and historical trends of the U.S. health system’s performance and its progress as compared with similar countries. The findings indicate that the U.S. continues to be outperformed by other countries and some outcomes are worsening such as longevity and disease burden.
Key findings include:
The Dashboard is available here.
The brief is available here.
On March 26, 2019, the U.S. Government Accountability Office (GAO) updated selected estimates from its June 2015 report, Retirement Security: Most Households Approaching Retirement Have Low Savings. The previous 2015 report on retirement security included estimates on the percentage of households age 55 and over without retirement savings or a defined benefit (DB) plan. The GAO updated these estimates using data from the 2016 Survey of Consumer Finances, which was released in September 2017 by the Board of Governors of the Federal Reserve System. According to the GAO, the percent of households headed by someone age 55 and over without retirement savings decreased from about 52% in 2013 to about 48% in 2016.
The 2015 study examined the financial resources of workers approaching retirement and of retirees, along with evidence provided by studies and surveys regarding retirement security. The GAO conducted the study by: 1) interviewing retirement experts about retirement readiness; 2) analyzing household financial data, including the Federal Reserve’s 2013 Survey of Consumer Finances on retirement savings and income; and 3) reviewing academic studies of retirement savings adequacy.
The GAO analysis identified several issues regarding the retirement security of the growing older population, including: 1) longer life expectancies; 2) private-sector pension coverage shifting from defined benefit (DB) plans to defined contribution (DC) plans; and 3) uncertainty regarding Social Security’s long-term financial condition.
The report is available here.
On April 22, 2019, the Medicare Board of Trustees released its annual report on the financial status of the Medicare funds. Total annual Medicare expenditures, which were $741 billion in 2018 or 3.7% of Gross Domestic Product (GDP), are expected to grow to 6.5% of GDP in 2093. The report warns that Medicare expenditures are projected to increase in most of the future years at a faster rate than either aggregate workers’ earnings or the overall economy. Total income for the Medicare program in 2018 amounted to $756 billion.
The Medicare program consists of two component programs for the elderly and disabled: Hospital Insurance (HI) and Supplementary Medical Insurance (SMI). The HI program (Medicare Part A) pays primarily for inpatient hospital care and is financed by a payroll tax of 1.45% of taxable earnings. The SMI program consists of Medicare Parts B and D. Medicare Part B is a voluntary program that pays for physician, outpatient hospital, home health, and other services. Medicare Part D is a voluntary program providing access to outpatient prescription drug benefits. Approximately one-quarter of the SMI program is financed by beneficiary premiums, with the remainder financed by transfers from the U.S. Treasury’s general fund.
According to the Medicare Trustees’ report, the long-term financial status of the HI Trust Fund changed with the actuarial deficit increasing to 0.91% of taxable payroll from 0.82% in last year’s report due to: 1) lower assumed productivity growth; 2) slower projected growth in the utilization of skilled nursing facility services; 3) higher costs and lower income in 2018 than expected; 4) lower real discount rates; and 5) other factors. However, the HI Trust Fund is projected to be insolvent in 2026 (the same as projected last year). After the HI Trust Fund is exhausted, payroll tax revenues would cover 89% of the projected HI program expenses in 2026, declining slowly to 77% in 2046, and rising gradually to 83% by 2093.
Additionally, the report states that “solutions can and must be found to ensure the financial integrity of the HI program in the short and long term and to reduce the rate of growth in Medicare costs through viable means. The sooner the solutions are enacted, the more flexible and gradual they can be. Moreover, the early introduction of reforms increases the time available for affected individuals and organizations…to adjust their expectations and behavior. The Board recommends that Congress and the executive branch work together with a sense of urgency to address these challenges.”
The report is available here.
On February 26, 2019, the Center for Retirement Research at Boston College (CRR) issued its brief, Why Has Poverty Declined for Widows? CRR analyzed the decrease in widows’ poverty from 1994-2014 based on data from the Health and Retirement Study, which is a biennial longitudinal survey of households ages 51 and older, to determine women’s education, work experience, marital status, income and demographics.
The key findings include:
The brief concludes, “Projections suggest that about half of the future decline in widows’ poverty between 2014 and 2029 will be driven by the changing marital composition of widows.”
The brief is available here.
IN THIS ISSUE
• Pension Plans Legislative Update
• Outdated Mortality Tables Lead to Participant Claims
• Governments Retain Some Flexibility in Altering Statutory Pension Provisions
• Cybersecurity for Retirement Plans
• Health Legislation Update
• Health Litigation Update: Texas v. United States
• HHS Releases Notice of Benefit and Payment Parameters for 2020 Final Rule