NASRA Releases Overview of Public Pension Plan Guidance

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NASRA Releases Overview of Public Pension Plan Guidance

On November 20, 2019, the National Association of State Retirement Administrators (NASRA) released its publication, Overview of Public Pension Plan Governance.  The paper is intended to summarize the laws and rules that govern public pension plans as well as the various entities typically responsible for those plans.  It discusses: 1) the role of legislative bodies and chief executives; 2) retirement system board and staff responsibilities; 3) external investment entities; and 4) other oversight entities.

Key findings include:

  • All public retirement systems are unique and should be measured in the context of their individual governance framework.
  • Typically, the governance of public retirement systems is the responsibility of various entities, primarily a legislative body, chief executive, board of trustees and key staff members.  Other entities may also have a role such as an oversight committee or agency.
  • Generally, the elected legislative bodies and chief executive are responsible for key areas of retirement system governance including setting benefit levels, benefit design and plan funding.
  • Commonly, retirement system boards and staff have restrictions in assigned governance responsibilities, such as asset management, personnel policies and use of service providers.   

The paper concludes, “Authority to make the most consequential decisions regarding the long-term health of a public pension plan typically lies not with the retirement system board, but with policymakers, who enact the laws that establish the plan, its design and financing; and who authorize the public entities responsible for key areas of governance.  Understanding a retirement system’s governance framework is a vital first step toward properly evaluating a public pension plan, its condition, and the entities responsible for various policy outcomes.”

In addition, the paper provides a listing of the oversight agencies for statewide retirement systems.

The paper is available here.

HHS Issues Proposed Rule on Health Coverage Transparency

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HHS Issues Proposed Rule on Health Coverage Transparency

On November 15, 2019, the Departments of Health and Human Services (HHS), Labor (DOL), and the Treasury have issued a new Transparency in Coverage Proposed Rule.  The rule imposes transparency requirements for group health plans and health insurers in the individual and group markets.  Under the proposed regulations, employer-sponsored group health plans and health insurers would be required to disclose extensive amounts of plan cost-sharing information (on request) to participants, beneficiaries, and enrollees (or their authorized representatives).  According to the HHS, the proposed rule is intended to empower patients, increase competition and potentially help to lower health care costs. 

If the rule is finalized, the health plans and insurance issuers would be required to provide accurate estimates of out-of-pocket costs that must be paid by individuals to meet their deductible, copay or coinsurance requirements.  Specifically, they would be required to:

  • Provide real-time cost-sharing information to participants through an online tool.  This information would include an estimate of the participant’s cost-sharing liability for all covered items and services that would allow consumers to compare costs between providers before receiving care.
  • Disclose negotiated rates for in-network and out-of-network providers.

Comments are due by January 14, 2020.

The proposed rule is available here.

NIRS Releases Report on State and Local Employee Views on Jobs, Pay and Benefits

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NIRS Releases Report on State and Local Employee Views on Jobs, Pay and Benefits

On November 12, 2019, the National Institute on Retirement Security (NIRS) released its report, State and Local Employee Views on Their Jobs, Pay and Benefits.  NIRS commissioned a national public opinion survey to examine the views of state and local public employees related to their job, pay and benefits.  The report is based on a survey of over 1,100 public sector employees age 18 and over with the majority being teachers as well as police officers, firefighters and other public sector employees.  All the employees are currently participating in pension plans.

The findings indicate that benefits are among the most important job features.  Of the respondents, 78% consider health insurance to be very important; 73% consider retirement benefits to be very important; and 71% consider salary to be important.  Many respondents have varying opinions pertaining to the competitiveness of their salary and compensation with 80% feeling that they could earn a higher salary in the private sector.  In 2019, 91% of state and local employees have access to retirement benefits, including defined benefit (DB) and defined contribution (DC) plans.  Overall, 94% have favorable views of DB plans.  In addition, 89% have access to medical care benefits. 

Other key findings include:

  • 93% of state and local employees feel pensions incentivize long years of public service;
  • 94% consider pensions to be an effective tool to attract and retain employees;
  • 89% plan to stay with their current employer until retirement eligibility or becoming unable to work;
  • 72% are confident in their ability to be financially secure in retirement; and
  • 86% are concerned about reductions in retirement benefits.

Currently, state and local governments are having difficulty attracting and retaining employees to perform essential taxpayers’ services.  However, the survey indicates that benefits like pensions are viewed as a powerful recruitment and retention tool and, therefore, reducing benefits may have severe workforce consequences.

The report is available here.

NASRA Updates Issue Brief on Cost-of-Living Adjustments

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NASRA Updates Issue Brief on Cost-of-Living Adjustments

On November 13, 2019, the National Association of State Retirement Administrators (NASRA) released its issue brief, Cost-of-Living Adjustments, which updates an earlier version published in December 2018.  The brief discusses: 1) the purpose of cost-of-living adjustments (COLAs); 2) types of COLAs; 3) costs of COLAs; and 4) recent state COLA legislative changes.

According to the brief, most state and local government pension plans provide some form of COLAs to offset or reduce the effects of inflation on retirement income.  In addition, COLAs are important for state and local government employees who do not participate in Social Security in order to supplement their income during disability or normal retirement.  Typically, governments prefund the cost of a COLA over an employee’s working career. 

The report also provides a summary of COLA provisions by state-level plans, including any recent legislative changes.  According to the report, of the 99 selected state-level plans that provide COLAs, 72 provide them on an automatic basis and 27 provide them on an ad hoc basis.

In addition, since 2009, 18 states have changed their COLAs for current retirees, seven states have changed COLAs for current employees’ future benefits, and six have changed COLAs for future employees only.  Since 2016, only three states have enacted COLA reductions that affect one or more major employee groups.  However, in several states, the legality of these changes has been challenged.  In addition, some states are including provisions that would allow COLAs to increase if the plan’s funding status or fiscal conditions improve or if inflation rises. 

The report also includes an appendix with a listing of COLA provisions for many state retirement plans and identifies the applicable changes from 2009-2019. 

The brief is available here.

CRS Analyzes New Proposed Social Security Proportional WEP Formulas

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CRS Analyzes New Proposed Social Security Proportional WEP Formulas

On November 8, 2019, the Congressional Research Service (CRS) released its report, The Windfall Elimination Provision (WEP) in Social Security: Proposals for a New Proportional Formula.  The report describes the current-law WEP and analyzes the proportional formulas presented under two bills introduced in 2019 for certain individuals that would become eligible for Social Security benefits in 2022 or later.  The two bills introduced were: 1) the Equal Treatment of Public Servants Act (H.R. 3934); and 2) the Public Servants Protection and Fairness Act (H.R. 4540).

According to the report, “The proportional formula allows people with some earnings from noncovered employment to receive the same replacement rate as those workers who spent their entire careers in covered employment, whereas the current-law WEP can only approximately achieve that.  If the proportional formula had applied to current beneficiaries in 2018 … about 1.1 million beneficiaries affected by the current WEP (or 69%) would have received a higher benefit and about 0.5 million (or 31%) would have received a lower benefit.  In addition, 13.5 million beneficiaries with some noncovered earnings who are not affected by the current WEP would have received a lower benefit.  Therefore, if the proportional formula were applied to new beneficiaries, it would generate program savings.”

The report is available here.

IRS Proposes Update to Mortality Tables for Calculating Required Minimum Distributions

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IRS Proposes Update to Mortality Tables for Calculating Required Minimum Distributions

On November 8, 2019, the Internal Revenue Service (IRS) issued a notice of proposed rulemaking providing guidance for life expectancy tables and applicable distribution period tables for calculating required minimum distributions (RMDs) from qualified retirement plans, individual retirement accounts (IRAs) and annuities, and certain other tax-favored employer-provided retirement arrangements.

In the proposed regulations, the life expectancy tables and applicable distribution period tables reflect longer life expectancies than the tables in the existing regulations.  The new tables have been developed based on mortality rates for 2021.  These mortality rates were derived by applying mortality improvement through 2021 to the mortality rates from the experience tables used to develop the 2012 Individual Annuity Mortality tables, which are the most recent individual annuity mortality tables.  If finalized, the life expectancy tables and Uniform Lifetime Table under the proposed regulations would apply for distribution calendar years beginning on or after January 1, 2021.

Since the proposed regulations reflect longer life expectancies, the annual RMDs from qualified defined contribution plans, IRAs and certain other tax-favored retirement plans would be reduced.  As a result, the updates would help to increase the effectiveness of these tax-favored retirement programs by allowing retirees to retain more retirement savings in the programs for their later years.

Comments are due by January 7, 2020 and a public hearing is scheduled for January 23, 2020.

The proposed rules are available here.

CRR/SLGE Report on the Funded Status of State and Local Pension Plans in Fiscal Year 2018

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CRR/SLGE Report on the Funded Status of State and Local Pension Plans in Fiscal Year 2018

On October 1, 2019, the Center for Retirement Research at Boston College (CRR) and the Center for State & Local Government Excellence (SLGE) released a new report, Update on the Funded Status of State and Local Pension Plans.  According to the report, the actuarial assets of state and local pension plans increased by 4.7% from $3.65 trillion in 2017 to $3.82 trillion in 2018 while liabilities increased by 3.8% from $5.05 trillion in 2017 to $5.25 trillion in 2018.  The larger percentage change in assets increased the funded ratio slightly from 72% in 2017 to 73% in 2018.

Other key findings include:

  • Annual liability growth has steadily declined each year from 7.7% in 2002 to 3.8% in 2018; and
  • Actuarial assets grew from -0.5% in 2002 to 4.7% in 2018.

The report concludes, “Fundamentally, the path of the funded ratio for public plans depends on the growth of actuarial assets relative to the growth of actuarial liabilities.  Liability growth slowed dramatically from 2001 to 2018, but still exceeded asset growth over the period – driving down the funded ratio from 103% in 2001 to 73% in 2018.  While more stringent funding methods would have modestly improved the trajectory of plan assets from 2001 to 2018, significant change requires also using a lower assumed rate.”

The report is available here. 

GRS Contributes Article to SOA on Variable Benefit Plans

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November 6, 2019

GRS Contributes Article to SOA on Variable Benefit Plans

Brian Murphy, FSA, EA, FCA, MAAA, PhD has authored the article “A Variable Benefit Plan for the Public Sector” in the SOA publication, “In the Public Interest.” The publication is sponsored by the Social Insurance and Public Finance section of the Society of Actuaries (SOA). In this article, Brian discusses how a variable benefit plan helps balance inflation protection and employer contribution rate stability.  He illustrates these plan objectives using a case study based on the experience of the Wisconsin Retirement System. 

The article is available here.

To learn more about variable benefit plans, please contact Brian at brian.murphy@grsconsulting.com or your GRS consultant.