Omnibus Spending Legislation Includes SECURE Act

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Omnibus Spending Legislation Includes SECURE Act

Currently, the end-of-the-year omnibus spending legislation, the Further Consolidated Appropriations Act (H.R. 1865), includes the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act).  The $1.3 trillion appropriations package for fiscal year 2020 would also repeal three tax provisions from the Affordable Care Act (ACA) including the “Cadillac tax,” health insurer tax and medical device tax.  In addition, the legislation includes a series of tax and disaster-related provisions as well as various provisions that would affect employee benefits.  If the legislation is enacted, more information will be provided in future GRS publications.

H.R. 1865 is available here. 

NASRA Releases Public Fund Survey Findings for FY 2018

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NASRA Releases Public Fund Survey Findings for FY 2018

On December 18, 2019, the National Association of State Retirement Administrators (NASRA) released its Public Fund Survey Summary of Findings for FY 2018.  The survey presents key data from 98 public defined benefit (DB) retirement systems with 120 plans, covering 12.9 million active members, 9.6 million retirees and other annuitants, and holding $3.62 trillion in assets.  

Overall, the retirement systems surveyed represent approximately 85% of state and local DB plan membership and assets as of Fiscal Year (FY) 2018.  The Summary of Findings presents information regarding plan funding, membership, benefits, contribution rates, cash flows, and actuarial assumptions. 

According to the report: 

  • The average actuarial funded ratio for the surveyed plans was 72.6% in FY 2018, slightly higher than the prior year.  Between FY 2017 and FY 2018, the aggregate actuarial value of assets increased 6.1% and the actuarial value of liabilities increased 5.4%.  Many state and local plans smooth investment gains and losses into the actuarial value of assets over time (typically five years and sometimes longer). 
  • Growth in pension liabilities remains at a median rate below 4.0% (the lowest historical rate), as a result of low salary growth and employment levels among states and local governments and the effects of many pension benefit reforms (mainly reductions) enacted in recent years.
  • The combined allocation of plan assets to public equities and fixed income securities was 71.7% in FY 2018.  Continued low interest rates have caused most plans to seek higher returns in other asset classes.  In recent years, allocations to real estate has steadily increased to over 7% for the second consecutive year and allocations to alternative investments (such as private equity and hedge funds) has continued to grow to about 19%.  In FY 2017, the allocation to fixed income securities remained about 23% and equities at about 48%. 
  • For most of the Public Fund Survey’s measurement period, the median investment return assumption used by public pension plans was 8.0%.  However, in FY 2018, the median actuarial assumption for investment return was 7.25%.  Notably, since 2009, many plans have reduced their investment return assumptions.
  • Since the inception of the survey, employer contribution rates have increased significantly mainly due to larger unfunded pension liabilities and often include lower investment return assumptions.  For some plans, higher employer contribution rates are the result of a disciplined approach to contribute all or more of their actuarially determined contributions.

The survey data is available for each individual retirement system and plan in Appendices A and B.  The data includes: plan membership, plan assets and liabilities, and actuarial funding levels.  

The summary is available here.  

KFF Publishes Fact Sheet on the Potential Impact of Texas v. U.S. on the Affordable Care Act

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KFF Publishes Fact Sheet on the Potential Impact of Texas v. U.S. on the Affordable Care Act

On November 27, 2019, the Kaiser Family Foundation released its fact sheet, Potential Impact of Texas v. U.S. Decision on Key Provisions of the Affordable Care Act.  The brief discusses the complex potential impact following the December 2018 federal trial court judge’s ruling in Texas v. U.S.  The lawsuit challenged the constitutionality of the entire Affordable Care Act (ACA).  In this case, the judge ruled that the ACA’s individual mandate is unconstitutional and, as a result, that the entire law should be struck down.  Although the trial court’s ruling will likely not determine the ACA’s validity, the brief presents the multifaceted potential impact if the entire ACA was ultimately held to be invalid.

The brief also provides a summary of the key ACA coverage-related provisions with estimates of their impact and the public’s viewpoints towards the changes to the health care system.

The fact sheet is available here.

NASRA Updates Issue Brief on State and Local Government Spending on Public Employee Retirement Systems

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NASRA Updates Issue Brief on State and Local Government Spending on Public Employee Retirement Systems

On December 4, 2019, the National Association of State Retirement Administrators (NASRA) updated its standing issue brief, State and Local Government Spending on Public Employee Retirement Systems.  The brief examines the cost of pension benefits for state and local governments and finds that, based on U.S. Census Bureau data, about 4.7% of all state and local government direct general spending (which includes all government expenditures except intergovernmental transfers) was used to fund pension benefits in 2017.  

Furthermore, state and local government direct general spending on public pensions has remained relatively stable over the past 30 years, declining from 4.1% in Fiscal Year (FY) 1989 to about 2.3% in FY 2002 and rising to 4.7% in FY 2017.  In aggregate, state and local governments contributed $160 billion to pension funds in FY 2018, which is projected to be about 5.0% of projected state and local government direct general spending.

The brief also finds that across state and local governments in 2017, spending on pensions varied from less than 2.0% of total spending to nearly 10.0%.  This variation was mainly due to: 1) differences in benefit levels; 2) differences in the magnitude of unfunded pension liabilities; 3) level of commitment by plan sponsors to make required pension contributions; 4) portion of the state’s population that lives in an urban area; and 5) fiscal condition of government plan sponsors.  As a percentage of total spending, pension costs were about 31% higher for cities than for state governments over the 30-year period from 1988-2017.  This is primarily attributable to the types of services delivered at the local level which results in a larger portion of local government spending on salaries and related benefits compared to state government spending. 

In addition, the brief clarifies that public pensions are financed from the combination of employee contributions, employer contributions and investment returns.  Since 1989, investment earnings amounted to about 63% of all public pension plan revenues, with an additional 26% from employer contributions, and 11% from employee contributions.  

The brief concludes, “Pension costs paid by state and local government employers vary widely and reflect multiple factors, including differing levels of public services, benefits, pension funding levels, employer effort to pay required contributions, and the fiscal condition of states and their political subdivisions, among others.”   

The brief also includes a table showing state and local government pension contributions in 2017 as a percentage of state and local government direct general spending on a state-by-state basis.

The brief is available here. 

NASBO Releases Fall 2019 Fiscal Survey of States

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NASBO Releases Fall 2019 Fiscal Survey of States

On December 17, 2019, the National Association of State Budget Officers (NASBO) released their semi-annual report, Fiscal Survey of States, Fall 2019.  The report updates information on the states’ fiscal conditions, including aggregate and individual state data on general fund receipts, expenditures, and balances.  The survey was conducted by NASBO and completed by state budget officers in all 50 states over the period from August 2019 through October 2019.

According to the report, state fiscal year (FY) conditions are solid and stable in the aggregate.  In FY 2020, states have enacted budgets that mark the tenth consecutive year of moderate state spending and revenue growth.  The fiscal conditions tend to vary significantly among states based on demographic trends, economic performance and state policies.  

Total general fund revenues increased 5.4% in FY 2019 with 46 states having revenue collections above budget forecasts, which is the highest number to do so since FY 2006.  In FY 2020, general fund revenues are projected to increase by 2.6%.

In addition, enacted state budgets for FY 2020 show general fund expenditures increasing 4.8% to $913.2 billion.  The NASBO report indicates that increases in state general fund spending for FY 2020 totaling $39.1 billion will be directed mainly to elementary and secondary education receiving $14.8 billion, and higher education receiving $4.4 billion.  Enacted 2020 budgets also indicate aggregate spending increases in Medicaid, corrections, public assistance and transportation with the largest appropriations in the “all other” category.  This category received $10.8 billion in appropriations for various expenditures including housing programs, other health programs besides Medicaid, reserve fund deposits, pension fund contributions, public safety, environment and conservation projects, among others.  

The survey also reported on “total balances” which include year-end balances and any budget stabilization funds or “rainy day funds” that the states have set aside for use in a financial downturn.  In FY 2019, total balances reached a record high in nominal dollars of $113.2 billion.  In FY 2020, the median total balance is expected to decline to $93.2 billion since states plan to spend down a portion of their accumulated end balances in the current budget cycle largely for one-time expenditures.

Most state balances in rainy day funds have been improving.  In FY 2020, total rainy day fund balances are expected to continue to increase, and the median as a share of expenditures is expected to reach 8.0%.  The median state’s rainy day fund balance reached an all-time high of 7.6% of general fund expenditures in FY 2019 as compared with 1.6% in FY 2010. 

In addition, the report found that mid-year budget actions indicate strong state fiscal conditions.  Importantly, there were no states that made mid-year reductions due to a revenue shortfall.   In FY 2019, 27 states made mid-year spending increases totaling $10.7 billion, for a net mid-year increase of $10.6 billion in general fund spending.

The report concludes, “Overall, state budgets demonstrate a cautious approach to ongoing spending commitments, a practice of directing non-recurring revenues to one-time expenditures, and a focus on promoting structural balance.” 

The full report and summary are available here.  

CMS Office of the Actuary Releases 2018 National Health Expenditures

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CMS Office of the Actuary Releases 2018 National Health Expenditures

On December 5, 2019, the Centers for Medicare & Medicaid Services (CMS) released their report on the National Health Expenditure Accounts (NHEA).  The NHEA measures annual U.S. expenditures for health care goods and services, public health activities, government administration, net cost of health insurance, and investments related to health care.  According to the CMS, U.S. health care spending grew 4.6% in 2018 and reached $3.6 trillion or $11,172 per person.  As a share of the gross domestic product (GDP), health care spending was 17.7% in 2018, down from 17.9% in 2017.

In 2018, health care spending for the broad categories of services and products include:

  • Hospital care spending increased 4.5% to $1.2 trillion, down from 4.7% in 2017;
  • Physician and clinical services increased 4.1% to $725.6 billion, down from 4.7%;
  • Other professional services increased 6.5% to $103.9 billion, up from 5.2%;
  • Dental services increased 4.6% to $135.6 billion, up from 3.8%; and
  • Prescription drugs increased 2.5% to $335.0 billion, up from 1.4%.  

In 2018, households accounted for 28% of total health care spending; the federal government accounted for 28%; private businesses (including the employer’s share of health insurance premiums) accounted for 20%; and state and local governments accounted for 17%, and other private revenues accounted for 7%.  The growth in federal government spending increased 5.6% in 2018, up from 2.8% in 2017.  The federal government’s increased spending for health care is mainly due to faster growth in the federally-sponsored portions of Medicare and Medicaid expenditures.  

Further information is available here.

GRS Supports Arkansas Children’s Hospital Auxiliary

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December 11, 2019

GRS Supports Arkansas Children's Hospital Auxiliary

GRS is pleased to have had an opportunity to provide a gift to the Arkansas Children’s Hospital Auxiliary 2019 Miracle Ball, associated with the Arkansas Children’s Foundation. This very special fundraiser helps enhance patient experience and funds various initiatives in support of child safety, health, and wellness. The Miracle Ball has become a signature event in Central Arkansas, raising more than $500,000 annually.  To learn more about the Arkansas Children’s Hospital Auxiliary visit: https://www.archildrens.org/support-us/foundation/arkansas-childrens-hospital-auxiliary

October 2019

IN THIS ISSUE
•Windfall Elimination Provision and Government Pension Offset Primer
• Pension Plans Legislative Update
• IRS Provides List of Preventative Care Benefits for HSA Participants to Include Certain Care for Chronic Conditions
• Tri-Agencies Announce Intent to Clarify Confusion over Drug Manfacturers’ Coupons and Maximum Out-of-Pocket Rules
• MHPAEA FAQs and Model Disclosure Form
• Health Legislation Update