Paul Wood Provides Insights on an Aging Population and Public Pension Policy

Events​

July 31, 2019

Paul Wood Provides Insights on an Aging Population and Public Pension Policy

Paul Wood, ASA, FCA, MAAA was interviewed by Leigh Snell, NCTR’s Director of Federal Relations for a webinar, held on July 31, 2019, discussing the policy challenges associated with an aging public sector workforce and retiree population. Paul provided the audience with insights on the new mortality tables, funding impact, actuarial assumption revisions, and emerging plan design trends. If you would like to learn more about this topic, please contact Paul at paul.wood@grsconsulting.com.

July 2019

IN THIS ISSUE
• Deferred Retirement Option Plans Primer
• Pension Plans Legislative Update
• Expansion of Self-Correction and Determination Letter Programs
• End in Sight for Initial 403(b) Plan Remedial Amendment Period
• Departments Issue Final Regulations Expanding Availability of HRAs
• ACA Section 1557 Proposed Rule
• Health Legislation Update
• Health Litigation Update: Texas v. United States

GRS Puts the Power of Benefit Design at City’s Fingertips

Case Study

GRS Puts the Power of Benefit Design at City’s Fingertips

The City of Seattle wanted to explore alternative benefit designs so it could continue to provide meaningful benefits to long-service employees and achieve cost savings that would not adversely impact recruitment and retention goals. Through a competitive bidding process, the City hired GRS to provide benefit and cost projection technology that the City’s Retirement Team could use in-house. GRS responded by delivering a powerful benefit design projection software solution which incorporated all of the City’s specific benefit design items (e.g., eligibility, benefit multipliers, early retirement factors, COLA, etc.), data, and actuarial assumptions.

The City was then able to easily model a myriad of scenarios finally settling on five alternative benefit designs that allowed them to identify both short-term and long-term savings, plan sustainability, and benefit adequacy. The scenarios modeled by the City included a benefit design that accomplished the desired level of savings, without changing the benefit multiplier, and several innovative hybrid alternatives to the traditional defined benefit approach.

Our software solution and GRS consultants’ expert guidance on plan changes and implementation helped the City adopt changes to its system in 2016.  The City continues to use our solution to manage its retirement system.

GRS Projection Technology Helps Pension Fund Improve Benefit Security

Case Study

GRS Projection Technology Helps Pension Fund Improve Benefit Security

During the last decade, one of our public defined benefit plan clients began to experience a declining workforce and shrinking payroll, which subsequently resulted in lower than expected contributions to the plan trust.   The plan, like many others, also suffered a severe decline in its funded status due to the 2008 financial crisis leading to a substantially lower funded ratio and substantially higher contribution rate requirements.

To minimize the effect of a shrinking payroll, we advised the Board of Trustees (and they adopted) a funding policy that moved the system to a dollar amount contribution rather than a percent of payroll.

With respect to ongoing monitoring of the declining payroll situation, GRS used its proprietary projection technology to test multiple scenarios that modeled changes in rates of return, payroll growth assumptions, and amortization periods.    Our interactive projection technology was used at meetings to help the Board see the impact on funded status, which ultimately led the plan to adopt a new amortization policy to further improve funding progress for the plan, and thereby improve benefit security.

Using projection technology has become part of GRS’ core valuation and consulting process for this client. Through regular scenario testing, GRS consultants will help the system refine its assumptions and funding policy on an ongoing basis, furthering the system’s goal of improving the financial condition of the plan.  We are pleased to see the trend in funding progress is now moving upwards.

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.

American Academy of Actuaries Publishes Brief on Drivers of Changes in 2020 Health Insurance Premiums

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American Academy of Actuaries Publishes Brief on Drivers of Changes in 2020 Health Insurance Premiums

On June 27, 2019, the American Academy of Actuaries (AAA) released its issue brief, Drivers of 2020 Health Insurance Premium Changes.  The brief was developed by the AAA’s Individual and Small Group Markets Committee and presents the Committee’s perspective regarding the key factors affecting the 2020 health insurance premiums, including:

  • The underlying growth in health care costs, or medical trend, which is expected to be consistent with 2019, ranging from 5% to 8%;
  • Recent and ongoing policy changes related to the elimination of the individual mandate penalty as well as the expanded availability of short-term limited duration plans, association health plans, and health reimbursement arrangements;
  • State actions to implement reinsurance programs, impose individual mandate penalties or enact rules that would affect alternative coverage options;
  • Adjustments to assumptions to include cost-sharing reduction subsidies into premiums;
  • Changes in the risk pool composition and insurer assumptions; and
  • Reinstatement of the health insurance provider fee.

The brief is available here.

CRR Updates State and Local Pension Plans Database for 2001-2018

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CRR Updates State and Local Pension Plans Database for 2001-2018

On July 17, 2019, the Center for Retirement Research at Boston College (CRR) released the updated Public Plans Database (PPD), which is developed and maintained through a collaborative effort of the CRR, the Center for State and Local Government Excellence (SLGE), and the National Association of State Retirement Administrators (NASRA).

The updated database contains annual state and local pension data for 2001-2018, with over 100 variables related to plan funding, benefits, membership, assets and governance.  The plans include 190 state and local pension plans, which accounts for 95% of state and local pension assets and members.

The online database interface includes:

  • Quick-fact pages with key data at the national, state and plan levels;
  • Interactive data browser for customized searches;
  • Downloadable full dataset to conduct an in-depth analysis; and
  • Downloadable financial reports and actuarial valuations.

In the most recent update, various features and documentation have been improved, including the Governmental Accounting Standards Board (GASB) Statement No. 67 data and reports.

The database is accessible here.

ISCEBS Publishes Article on Ways Employers Can Help Workers Prepare for Retirement

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ISCEBS Publishes Article on Ways Employers Can Help Workers Prepare for Retirement

On July 16, 2019, the International Society of Certified Employee Benefit Specialists (ISCEBS) published its article in the third quarter 2019 issue of Benefits Quarterly, “Retiree Reflections: Seven Ways Employers Can Do More to Help Workers Prepare for Retirement.”  According to the article, many retirees are financially vulnerable and only 18% are confident that they can maintain a comfortable lifestyle throughout retirement.  Importantly, one of the most effective ways employers can help workers save for retirement is by offering an employer-sponsored retirement plan. The seven ways employers can help prepare employees for retirement, include:
  • Offer a retirement savings plan;
  • Encourage workers to actively engage in retirement planning;
  • Refresh and promote the availability of retirement education and advice;
  • Promote short- and long-term financial security by offering a variety of benefits;
  • Educate preretirees about Social Security benefits;
  • Be an aging-friendly employer; and
  • Enable workers to work past age 65 with a flexible transition into retirement.
The article concludes, “Employers play an increasing vital role in helping their employees prepare for retirement,… Compensation and employee benefits – specifically, retirement benefits – can profoundly influence a worker’s trajectory for long-term financial security and retirement success.” The article is available here.

American Academy of Actuaries Releases Brief on National Retirement Policy and Principles

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American Academy of Actuaries Releases Brief on National Retirement Policy and Principles

On July 11, 2019, the American Academy of Actuaries (AAA) released its issue brief, National Retirement Policy and Principles.  The brief was developed by the Academy’s Retirement System Assessment and Policy Committee and examines various elements of a national retirement policy.  In addition, it provides potential approaches to the principles of a national retirement policy, including: availability, adequacy, risk allocation, treatment of different income levels, use of incentives, individual choice, cost, portability and leakage. 

Some key highlights include:

  • For the majority of Americans, there is an increasing concern about having adequate and reliable retirement income.
  • Currently, many individuals rely on a combination of Social Security, employer-sponsored retirement plans, and/or personal savings to fund their retirement needs.
  • There is a growing need for the establishment of a comprehensive national retirement policy with guiding principles for the U.S. retirement system.

The brief is available here.

Kaiser Family Foundation Issues Brief on the Implications of a Court Case Challenging ACA’s Constitutionality

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Kaiser Family Foundation Issues Brief on the Implications of a Court Case Challenging ACA’s Constitutionality

On July 3, 2019, the Kaiser Family Foundation (KFF) prepared an issue brief, Explaining Texas v. U.S.: A Guide to the 5th Circuit Appeal in the Case Challenging the ACA.  In December 2018, U.S. District Judge Reed O’Connor invalidated the entire ACA after finding that the individual mandate was unconstitutional. 

The outcome of the legal challenge of the ACA in the case, Texas v. U.S., may have significant consequences for the nation’s health system.  Several ACA provisions would be eliminated, including protections for individuals with pre-existing conditions, subsidies to make individual health insurance more affordable, expanded eligibility for Medicaid, coverage of young adults up to age 26 under their parents’ insurance policies, coverage of preventive care with no patient cost-sharing, closing the doughnut hole under Medicare’s drug benefit, and a number of tax increases to fund the new benefits.

The issue brief explains key questions related to the Texas v. U.S. appeal, including: 1) Who is challenging the ACA?; 2) What is the federal government’s position, and how has it changed over time?; 3) Who is defending the law?; and 4) What issues will the 5th Circuit Court consider?

Oral arguments were held on July 9, 2019 in the U.S. Court of Appeals for the 5th Circuit. The arguments addressed the merits of the District Court’s decision and whether the appellants have standing to bring the appeal.

The brief is available here.