American Academy of Actuaries Publishes Brief on the 2019 Social Security Trustees Report

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American Academy of Actuaries Publishes Brief on the 2019 Social Security Trustees Report

On May 22, 2019, the American Academy of Actuaries (AAA) released its issue brief, An Actuarial Perspective on the 2019 Social Security Trustees Report. The brief was developed by the AAA’s Social Security Committee and presents the Committee’s perspective regarding the 2019 Trustees Report, which examines the Social Security program’s long-term solvency issues. In addition, it recommends that Congress should take action to ensure the sustainable solvency of the program. The Trustees Report projects that the Social Security trust fund exhaustion date is extended to 2035 when payroll taxes will cover about 75% of promised benefits.

The report provides separate solvency measures and tests in the short-range (2019-2028) and long-range (2019-2093) time periods. According to the report, “Social Security’s short-range OASDI financial projection is about the same as the projection made a year ago… Moving the short-range estimate period one year forward alone caused a decline of 17 percentage points…The actuarial balance improved from a negative 2.84 percent in the 2018 report to a negative 2.78 percent in the 2019 Trustees Report.”

The report states, “In order to achieve viability of Social Security in the foreseeable future, any modifications to the system should include sustainable solvency as a primary goal. Sustainable solvency means that not only will the program be solvent for the next 75 years under the reform methods adopted, but also that the trust fund reserves at the end of the 75-year period will be stable or increasing as a percentage of the annual program cost…Providing for solvency beyond the next 75 years will require changes to address micro-aging, as beneficiaries will likely be receiving benefits for ever-longer periods of retirement.”

The brief is available here.

U.S. Census Bureau Reports Public Pension Assets Increased Sharply in the First Quarter of 2019

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U.S. Census Bureau Reports Public Pension Assets Increased Sharply in the First Quarter of 2019

On June 27, 2019, the U.S. Census Bureau reported that total holdings and investments for the 100 largest state and local government retirement systems increased 6.2% from approximately $3.6 trillion at the end of the fourth quarter of 2018 to $3.8 trillion at the end of the first quarter of 2019.  Compared to the first quarter in 2018, assets increased 1.8% from $3.8 trillion.  The primary driver of the increase was due to gains on investments, which totaled $230.9 billion during the first quarter of 2019. 

​During the first quarter of 2019, holdings and investments in corporate stocks increased 11.1% from $1,242 billion to $1,381 billion, corporate bonds increased 5.6% to $413 billion, international securities increased 4.1% to $697 billion, federal government securities increased 8.7% to $424 billion, and cash and short-term investments increased 6.4% to $112.1 billion.

The results are from the U.S. Census Bureau’s Quarterly Survey of Public Pensions which surveys the revenues, expenditures, and composition of assets for the 100 largest U.S. public employee retirement systems.  These systems comprise 88% of the total cash and security holdings reported for public plans in the 2012 Census of Governments.  The report also provides a table showing the quarterly changes in contributions, benefits and investment earnings from the second quarter of 2016 to the first quarter of 2019.  

The summary is available here.

NASRA Updates Brief on State and Local Government Contributions to Statewide Pension Plans for Fiscal Year 2017

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NASRA Updates Brief on State and Local Government Contributions to Statewide Pension Plans for Fiscal Year 2017

In June 2019, the National Association of State Retirement Administrators (NASRA) updated its issue brief, State and Local Government Contributions to Statewide Pension Plans: FY 17. The brief examines: 1) how contributions are determined; 2) recent public employer contribution experience; and 3) trends in employer contributions over time.

According to NASRA, “Overall, the experience for FY 17 reflects a continuation of an improved effort among state and local governments to make actuarially determined pension contributions: on a dollar-weighted basis, the percentage of required contributions that was paid by public employers increased for the fifth consecutive year, while pension costs continued to grow at a slower pace than previous years.”

NASRA’s findings indicate that the median actuarially determined contribution (ADC) received in FY 17 was 100%, ranging from 38.4% to 174.0%. On a dollar-weighted basis, the average ADC received was 94.0%, up from 92.0% in FY 16. The aggregate rate of increase in required contributions from FY 16 to FY 17 was 4.3%. This is the second lowest rate of increase during the measurement period, which marks the fourth consecutive year of growth in required contributions below 5.0%.

On average, employer contributions to public pension plans continue to be a small percentage of state and local government spending. In recent years, employer contributions have been growing. Among the statewide pension plans included in the study, the ADCs increased from $27.8 billion in FY 01 to $109.4 billion in FY 17, up 186% in inflation-adjusted dollars. The actual employer contributions paid rose from $28.0 billion in FY 01 to $96.9 billion in FY 17, up 153% in inflation-adjusted dollars.

Depending on the plan, the growth of required employer contributions is due to one or more factors, including: 1) investment market losses; 2) insufficient contributions; 3) more conservative actuarial methods and assumptions (i.e., lower investment return assumptions and more aggressive amortization periods); and 4) demographic and investment experience that differs from assumptions.

The brief is available here.

GASB Issues Implementation Guide to Statement No. 84 for Fiduciary Activities

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GASB Issues Implementation Guide to Statement No. 84 for Fiduciary Activities

On June 17, 2019, the Governmental Accounting Standards Board (GASB) issued Implementation Guide No. 2019-2 for accounting and financial reporting for fiduciary activities in accordance with the requirements of GASB Statement No. 84, Fiduciary Activities. The main objective of Statement No. 84 is to enhance the consistency and comparability of fiduciary activity reporting by state and local governments.

The guide is presented in a “question and answer” format and is intended to clarify, explain or elaborate on the requirements of GASB Statement No. 84, which became effective for reporting periods beginning after December 15, 2018.

The guide is available on the GASB’s web site here.

Final Regulations Issued for Health Reimbursement Arrangements

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Final Regulations Issued for Health Reimbursement Arrangements

On June 13, 2019, the U.S. Departments of Health and Human Services, Labor and Treasury (collectively “The Departments”) issued final regulations expanding the use of Health Reimbursement Arrangements (HRAs) by employers and other plan sponsors, if certain requirements are met. HRAs are a type of account-based health plan that employers can use to reimburse employees for their medical care expenses. Effective January 1, 2020, the new rule creates two new types of HRAs: 1) Individual Coverage HRA (ICHRA); and 2) Excepted Benefit HRA (EBHRA).

For an ICHRA, employers and other plan sponsors may provide employees with tax-preferred funds to pay for health insurance coverage purchased in the individual market, subject to certain conditions. Under the new regulations, an HRA is permitted to be integrated with certain qualifying individual health plan coverage in order to satisfy the market reforms.

For an EBHRA, employers and other plan sponsors that offer traditional group health plans may provide a stand-alone HRA of up to $1,800 per year, indexed to inflation after 2020. Employers may also reimburse employees for certain qualified medical expenses, such as premiums for vision, dental, and short-term, limited duration insurance.

The Departments estimate that the expansion of HRAs will benefit about 800,000 employers and over 11 million employees and family members, including an estimated 800,000 individuals who were previously uninsured.

The final regulations are available here.

Further information is available in the FAQs on New Health Coverage Options for Employers and Employees here.

NASBO Releases Spring 2019 Fiscal Survey of States

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NASBO Releases Spring 2019 Fiscal Survey of States

On June 13, 2019, the National Association of State Budget Officers (NASBO) released their semi-annual report, The Fiscal Survey of States: Spring 2019. The report updates information on the states’ fiscal conditions and presents aggregate and individual data on the states’ general fund receipts, expenditures, and balances. The survey was conducted by NASBO and completed by the governors’ state budget officers in all 50 states over the period from February 2019 through April 2019.

The NASBO reports that most state fiscal conditions are stable overall and governors have recommended budgets with moderate state spending and revenue growth in Fiscal Year (FY) 2020. State general fund spending is estimated to increase 3.7% in FY 2020, totaling $916 billion across all 50 states.

According to the report, the states’ general fund revenues are projected to increase by 4.0% in FY 2020, as compared with an estimated 2.7% gain in FY 2019. Since most governors’ state budgets were released before states were able to incorporate the April tax collections, it is expected that estimated revenue growth in FY 2019 is understated.

General fund expenditures are projected to be $916 billion in FY 2020, up from an estimated $883 billion in FY 2019. In FY 2020, governors recommended spending increases across all program areas totaling $31 billion. This reflects a strong state fiscal environment. Most states are allocating additional funding for K-12 and higher education, which comprise the largest state general fund expenditures, totaling $18 billion or 58% of the new money for FY 2020.

The survey also reported on “total balances” which include year-end general fund balances and any budget stabilization (or “rainy day”) funds that the states have set aside for use during a financial downturn. In FY 2010, total state balances reached a low of 1.6% due to the severe decline in revenues and increase in expenditures due to the recession. In FY 2019, total balances are estimated at $98.7 billion. For FY 2020, the governors have recommended decreasing total balances slightly to $93.8 billion. The balances in states’ rainy day funds (used to respond to an economic downturn or other unforeseen event) are expected to total about $68.2 billion in FY 2019 and reach $74.7 billion in FY 2020.

The report also discusses Medicaid spending growth that is estimated with a median growth rate of 5.3% across all fund sources in FY 2019. In addition, Medicaid spending growth is expected to slow slightly in FY 2020 to an estimated median rate of 4.0%. State fund spending is projected to grow by 3.1% and federal fund spending is expected to increase 4.5%.

The report concludes, “Despite favorable revenue conditions, governors and other state officials are mindful that some of the recent revenue gains…are likely temporary, and therefore, are choosing to direct some new money in fiscal 2020 budgets towards one-time expenditures including paying down debt and making extra pension fund contributions. State officials are also continuing to bolster their states’ rainy day fund balances in anticipation of the next economic downturn.”

The full report and summary are available here.

Commonwealth Fund Releases State Health Care Scorecard

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Commonwealth Fund Releases State Health Care Scorecard

On June 12, 2019, the Commonwealth Fund released its 2019 Scorecard on State Health System Performance. The Scorecard assesses various health care measures in 50 states and the District of Columbia. The state-by-state report covers access to care, quality of care, health care costs, health outcomes, and income-based disparities, among others.

Some of the key highlights include:

  • The increase in deaths from suicide, alcohol and drug overdose is a national crisis, but the results vary by state.
  • In several states, the uninsured rates have declined following recently expanded eligibility for Medicaid programs; however, in some states the gains have slowed or eroded.
  • Per capita health care spending growth in employer plans is surpassing that in Medicare.

States face significant challenges in promoting affordable health care and the best possible outcomes for their residents. According to the Scorecard, the overall top six ranked states (in order of ranking) include: Hawaii, Massachusetts, Minnesota, Washington, Connecticut and Vermont.

CRR Issues Brief on Women, Marriage, and the National Retirement Risk Index

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CRR Issues Brief on Women, Marriage, and the National Retirement Risk Index

On June 11, 2019, the Center for Retirement Research at Boston College (CRR) released its issue brief, Women, Marriage, and the National Retirement Risk Index. For this study, the CRR used the National Retirement Risk Index (NRRI) to evaluate the retirement security of women ages 50-59.

The NRRI measures the percent of U.S. working households who are at risk of being unable to maintain their pre-retirement standard of living throughout retirement. The NRRI compares projected household replacement rates (i.e., retirement income as a share of pre-retirement income) with the target replacement rates needed to maintain their standard of living, and then calculates the percentage of households at risk of falling short. As of 2016, the results indicate that more than half of U.S. households will face major retirement income challenges and need more retirement savings to ensure retirement security.

Key findings include:

  • Since women are spending more of their lives single, it is useful to consider how their marital history affects their retirement preparedness.
  • Although married women have greater household earnings and wealth, they are 46% more at risk of failing to maintain their standard of living in retirement as compared with about 39%, on average, for all single women.
  • The counterintuitive outcome is due to two-earner couples who: 1) get less from Social Security relative to their earnings as a result of the decline of the spousal benefit; and 2) may save less in 401(k)s since often only one spouse has coverage.

The brief concludes, “These findings highlight the need for two-earner couples to save more, and the best way to address this issue would be to broaden access to retirement savings plans in the workplace.” Adding, “The findings also underscore the importance of Social Security for single women due to their lower earnings, suggesting the value of maintaining currently scheduled benefits.”

The brief is available here.

Federal Reserve Reports Public Pension Assets Reach Record $4.5 Trillion in the First Quarter of 2019

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Federal Reserve Reports Public Pension Assets Reach Record $4.5 Trillion in the First Quarter of 2019

On June 6, 2019, the Board of Governors of the Federal Reserve released its Financial Accounts of the United States statistical report for the first quarter of 2019. On page 99, the report shows that state and local government employee retirement fund assets totaled a record $4.50 trillion on March 31, 2019, up from $4.25 trillion on March 31, 2018, an increase of $253 billion (or 5.6% based on the unrounded asset values). Moreover, state and local retirement funds’ holdings of corporate equities totaled $2.75 trillion (30.1% of total assets) on March 31, 2019, up from $2.61 trillion (29.7% of total assets) on March 31, 2018.

The Federal Reserve’s report is available here.

IRS Announces 2020 HSA Contribution Limits

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IRS Announces 2020 HSA Contribution Limits

On May 28, 2019, the Internal Revenue Service (IRS) issued Revenue Procedure 2019-25, which provides the 2020 inflation-adjusted amounts for Health Savings Accounts (HSAs) as determined under Internal Revenue Code (IRC) § 223. For calendar year 2020, the annual limitation on deductions for an individual with self-only coverage under a High-Deductible Health Plan (HDHP) is $3,550. For calendar year 2020, the annual limitation on deductions for an individual with family coverage under a HDHP is $7,100.

For calendar year 2020, the IRS defines a HDHP under IRC § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) do not exceed $6,900 for self-only coverage or $13,800 for family coverage.

Revenue Procedure 2019-25 is effective for calendar year 2020. It is included in Internal Revenue Bulletin 2019-22, which is available here.