Peterson-KFF Health System Tracker Reports on the Effects of COVID-19 on U.S. Health System Performance

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Peterson-KFF Health System Tracker Reports on the Effects of COVID-19 on U.S. Health System Performance

On July 23, 2020, the Peterson-Kaiser Family Foundation (KFF) Health System Tracker released its brief, COVID-19 Repercussions May Outweigh Recent Gains in U.S. Health System Performance.  The Peterson-KFF Health System Dashboard compiles data on the U.S. health system’s performance in four areas: 1) access and affordability; 2) health and well-being; 3) health spending; and 4) quality of care. 

The brief examines the broader trends in the U.S. health system and considers the potential significant impact of the COVID-19 pandemic on measures of quality and performance.  

Some of the key findings include:

  • As of 2017, rates of disease burden (which is a measure that accounts for both longevity and quality of life) are higher in the U.S. than in comparable countries.  In part, the high rate of U.S. disease burden can be attributed to conditions that may be risk factors for developing serious illness from COVID-19, including chronic respiratory diseases, diabetes and heart disease.
  • From 2011 to 2018, the adults reporting problems paying medical bills declined by more than 25%.  The potentially high cost of treating COVID-19 and changes in the use of health care services during the pandemic could affect the affordability of care.

The brief is available here.

Actuarial Standards Board Adopts Revisions of ASOP Nos. 27 and 35

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Actuarial Standards Board Adopts Revisions of ASOP Nos. 27 and 35

On July 21, 2020, the Actuarial Standards Board (ASB) announced that it recently adopted revisions of Actuarial Standard of Practice (ASOP) No. 27, Selection of Economic Assumptions for Measuring Pension Obligations, and No. 35, Selection of Demographic and Other Noneconomic Assumptions for Measuring Pension Obligations.

ASOP No. 27 provides guidance to actuaries when performing actuarial services that include selecting or providing advice on selecting economic assumptions (i.e., investment return, discount rate, post-retirement benefit increases, inflation, and compensation increases) for measuring obligations under defined benefit pension plans. 

ASOP No. 35 provides guidance to actuaries when performing actuarial services that include selecting or providing advice on selecting demographic and other noneconomic assumptions for measuring obligations under defined benefit pension plans. 

Both of the ASOPs underwent two exposure periods, and the ASB received a combined total of 26 comment letters and 22 comment letters, respectively.  The comment letters received were considered in making the changes included in the revised ASOPs.  Some of the significant changes to ASOP Nos. 27 and 35 consist of clarifying the scopes and disclosure requirements of the ASOPs regarding assumptions not selected by the actuary.  In addition, several sections in both ASOPs were revised for clarity, consistency or readability.

ASOP Nos. 27 and 35 are effective for actuarial reports issued on or after August 1, 2021, and when the measurement date in the actuarial report is on or after August 1, 2021. ​

ASOP No. 27 is available here and ASOP No. 35 is available here.

American Academy of Actuaries Publishes Brief on Asset Allocation and Investment Return Assumption

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American Academy of Actuaries Publishes Brief on Asset Allocation and Investment Return Assumption

On July 8, 2020, the American Academy of Actuaries (AAA) published its issue brief, Asset Allocation and the Investment Return Assumption.  According to the brief, “The expected investment return for a pension plan’s assets used as the discount rate for public and multiemployer pension plan valuations is sometimes referred to as the “actuarial” rate of return.  This assumption often has a greater impact on the pension liability than any other assumption.”  The brief discusses why the investment return assumption is typically determined by the asset allocation, rather than the reverse.

Other key highlights include:

  • Asset allocation is determined in accordance with a plan’s investment policy that identifies the objectives, duties, policies, and procedures related to the plan investments. 
  • The level of investment risk should be consistent with the objectives of plan sponsors and fiduciaries.
  • After the asset allocation is set, then the assumption for the expected return can be determined.
  • The investment return assumption used to measure pension liabilities is sometimes treated as a return target for determining the pension plan’s asset allocation, which may lead to increased investment risk.
  • Generally, investment risk should be reduced as a plan matures.

The brief concludes, “Analysis focused on the potential for unexpected changes in contribution requirements and the implications for benefit security provide the basis for sound asset allocation decisions.  The investment return assumption can then be determined based on an asset allocation that results in an appropriate amount of risk.”

The brief is available here.

CRR Releases Brief on the Impact of Pandemic-Related Unemployment on Retirement Security

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CRR Releases Brief on the Impact of Pandemic-Related Unemployment on Retirement Security

In July 2020, the Center for Retirement Research (CRR) released its issue brief, How Widespread Unemployment Might Affect Retirement Security.  Due to the effects of the COVID-19 coronavirus pandemic, the Bureau of Labor Statistics has estimated the U.S. unemployment rate at 11.1% as of June 2020, up from 4% in June 2019.  As a result, unemployment driven by the pandemic’s effect on the economy is expanding the national retirement crisis, which will likely increase in severity as unemployment at this degree continues.

The key findings include:

  • Before the pandemic, 50% of households were at risk of being unable to maintain their pre-retirement standard of living in retirement.
  • The rise in unemployment related to the pandemic’s effect on the economy has likely increased the share of households at risk from 50% to 55%.
  • The impact of lower asset prices and interest rates would result in a larger increase.
  • Those unemployed that were already at risk before the pandemic are experiencing a larger savings gap.

The report concludes, “These results underscore the need for policies that provide well-targeted assistance to employers and individuals aimed at preventing more people from becoming unemployed and getting those who are unemployed back to work quickly as the pandemic subsides.  The shorter the spell of unemployment, the less harm people will experience to their long-term retirement prospects.”

The report is available here.

 

NASRA Updates Issue Brief on State Hybrid Retirement Plans

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NASRA Updates Issue Brief on State Hybrid Retirement Plans

In July 2020, the National Association of State Retirement Administrators (NASRA) announced the release of its issue brief, State Hybrid Retirement Plans, which updates an earlier version published in January 2019.  The brief provides new information on statewide cash balance and combination hybrid plans as well as a map that illustrates the percentage of public employees who participate in mandatory or optional hybrid plans in states that administer such plans for groups of general, public safety or K-12 educational employees. 

While the majority of public employee retirement systems are traditional defined benefit plans, some public-sector plans are considering hybrid plans that contain elements of both defined benefit (DB) and defined contribution (DC) plans.  The brief examines two types of hybrid plans: 1) cash balance plans that combine elements of a traditional DB plan and individual accounts into a single plan; and 2) “DB+DC” plans that combine a smaller traditional DB pension plan with separate individual DC retirement savings accounts.  

The brief also provides overviews of cash balance and DB+DC plans that have been established in various states, with some dating back several decades.  According to the brief, public-sector hybrid plans have diverse combinations of retirement plan designs to address the cost and risk factors of various state or local governments.  However, most continue to include features that meet fundamental retirement plan objectives including:  mandatory participation, shared financing, professionally managed pooled investments, benefit adequacy and lifetime benefit payouts.  Typically, traditional public-sector DB plans that contain hybrid plan elements include benefits or employee contributions that are linked to the plan’s investment performance or actuarial condition.    

As of March 2019, the U.S. Department of Labor’s Bureau of Labor Statistics reported that about 50% of the private-sector workforce participates in employer-sponsored retirement plans.  By comparison, nearly all state and local government workers have mandatory retirement plan participation. 

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

In July 2020, the National Association of State Retirement Administrators (NASRA) announced the release of its issue brief, Cost-of-Living Adjustments, which updates an earlier version published in November 2019.  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 100 selected state-level plans that provide COLAs, 72 plans provide them on an automatic basis and 28 plans 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 2009-2020.  

The brief is available here.

NASBO Releases Spring 2020 Fiscal Survey of States

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NASBO Releases Spring 2020 Fiscal Survey of States

On June 25, 2020, the National Association of State Budget Officers (NASBO) released their semi-annual report, The Fiscal Survey of States: Spring 2020.  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 March 2020 through May 2020.  

According to NASBO, the report is based mainly on data from governors’ budget proposals for fiscal 2021 and reflects state fiscal conditions before the COVID-19 pandemic and economic crisis.  It is expected that the report data will serve as a historical baseline for comparison to post-COVID fiscal conditions, as states release revised revenue forecasts, and adjust their budgets for fiscal 2020 and fiscal 2021.

Pre-COVID, state fiscal conditions were generally solid and rainy day fund balances were at an all-time high.  As a share of general fund spending, the median rainy day fund balance was estimated to reach 7.8% in fiscal 2020.  In addition, fiscal 2021 budgets were focused on investing in key priorities while planning for modest spending growth of 2.8%.

Other key findings include:

  • Governors’ proposed appropriation increases total $33.2 billion, with more funding directed to K-12 education, Medicaid, reserves, and other areas.
  • In fiscal 2020, states estimated general fund spending was on course to grow 8% prior to the impact of COVID-19 on state budgets.
  • For fiscal 2020 general fund revenue collections, 42 states reported meeting or exceeding original budgeted revenue projections before the COVID-19 crisis.
  • Pre-COVID budgets were based on forecasted general fund revenue growth of 4% in fiscal 2021.
  • Overall, governors proposed mostly modest tax changes in their budgets, with a net revenue impact of $2.4 billion in fiscal 2021, with most additional revenue going toward non-general fund sources.
  • Pre-COVID Medicaid spending from all funds was expected to grow by a median of 4% in fiscal 2021, with state general funds increasing 4.2%, other state funds remaining steady, and federal funds growing 3.5%.

The full report and summary are available here.

July 2020

IN THIS ISSUE

• Pension Plans Legislative and Agency Update
• Recent IRS Impermissible CODA Rulings Related to Governmental Plans
• IRS Signals Focus on 403(b) and 457(b) Catch-Ups
• Pension Litigation Update–Torres v. American Airlines
• Health Legislative Update–Provisions in the House-Passed HEROES Act
• CMS Permits Non-Federal Governmental Plans to Extend Certain Timeframes
• IRS Releases Notices 2020-29 and 2020-33 Affecting Cafeteria Plans
• Tri-Agency FAQs on FFCRA and CARES Act

Piotr Krekora to Serve as a Panel Speaker for “Pension Risk Appetite” Webcast

Events​

July 14, 2020

Piotr Krekora to Serve as a Panel Speaker for "Pension Risk Appetite" Webcast

Piotr Krekora will serve as a panel speaker for a webcast sponsored by the Society of Actuaries (SOA). The webcast, “Pension Risk Appetite,” will address how plans can make appropriate decisions in consideration of risks associated with asset allocation and investment assumptions and disclosures required under ASOP 51.

Webcast Registration