IN THIS ISSUE
• Pension Plans Legislative Update
• Public Pension Funding Challenges During COVID-19
• Arizona Supreme Court Rulings on Vacation and Sick Leave Payouts
• California Supreme Court Ruling on Pension Reform
• Oregon Supreme Court Rules Pension Reforms Constitutional
• HHS Proposed Rule and DOL Final Rule on Good Guidance
• ACA Section 1557 Nondiscrimination Final Rule: Litigation Update
• DOL Amends FFCRA Regulations Following District Court Decision
On October 26, 2020, Fitch Ratings released its report, 2020 State Liability Report. The annual survey report covers U.S. states’ direct debt and pension liabilities, which finds that long-term liabilities declined for the fourth consecutive year in 2019.
According to Fitch Ratings, “State long-term liability burdens continued to decline in fiscal 2019, the last full year of the long economic expansion that followed the Great Recession. The median ratio of states’ direct debt and Fitch Ratings-adjusted net pension liabilities to personal income measured 5% in fiscal 2019, down from 5.7% one year earlier and 6% in fiscal 2016. The ratio declined for 42 states in fiscal 2019 and increased for eight.”
One common factor among high pension burden states is that the state directly carries some or all of the unfunded pension liability associated with certain public workers outside of state government, which is referred to as a special funding situation. In addition, in the majority of these states, the net pension liability of local school teachers is carried by the state.
Importantly, the report indicates that the data have yet to be affected by the economic disruptions caused by the coronavirus pandemic.
The report is available here.
On October 21, 2020, the Retirement Plans Experience Committee (RPEC) of the Society of Actuaries (SOA) issued its Mortality Improvement Scale MP-2020 Report. The report provides the new MP-2020 Mortality Improvement Scale, which is an annually updated mortality improvement scale for pension plans. The new scale suggests that life expectancies decreased slightly, which may result in slightly lower pension plan obligations. According to the SOA’s report, their preliminary estimates indicate that, generally, updating from the MP-2019 to the MP-2020 scale may reduce a pension plan’s obligations by about 0.3% to 0.8%, when calculated using a 4.0% discount rate.
The report also contains considerations related to COVID-19, including: 1) the MP-2020 scale is based on data through 2018 so it does not reflect any actual COVID-19 deaths; and 2) adjusting the scale for future impacts of COVID-19 should be done with caution since any change made in one year affects all future mortality rates.
The MP-2020 scale incorporates the most recent publicly available mortality data from the Social Security Administration (SSA) for 2016 and 2017. In addition, it includes preliminary 2018 data developed by the SOA and acquired from the SSA, Centers for Disease Control and Prevention (CDC), Centers for Medicare and Medicaid Services (CMS) and the U.S. Census Bureau.
Currently, Piotr Krekora, Consultant for GRS, serves as a member of the RPEC and David Kausch, Chief Actuary for GRS, previously served as a member and chairperson of the RPEC.
MP-2020 is available here.
On October 14, 2020, the National Institute on Retirement Security (NIRS) released its report, Accessing Long-Term Care Coverage Through Medicaid: The Safety Net for Seniors Facing Unmanageable Costs. The report focuses on the long-term care coverage of older Americans and their options for accessing care. In addition, it reviews Washington State’s long-term care social insurance program that is projected to reduce Medicaid expenses.
The rules governing access to long-term care coverage through Medicaid are complex and vary extensively from state-to-state. Multiple approaches are likely needed to maximize the possibility of providing long-term care for all in need paired with a rational financing strategy. The report proposes policy solutions intended to address the volatile and potentially catastrophic costs of long-term care, including:
The report is available here.
On October 8, 2020, the Commonwealth Fund, Employee Benefit Research Institute (EBRI) and W.E. Upjohn Institute for Employment Research released a joint issue brief, How Many Americans Have Lost Jobs with Employer Health Coverage During the Pandemic? According to the report, as of June 2020, an estimated 7.7 million workers lost jobs with Employer-Sponsored Insurance (ESI) due to the pandemic-induced recession. Of these workers, the ESI covered 6.9 million of their dependents, for a total of 14.6 million affected individuals.
Of those that lost jobs with ESI during the pandemic, over 50% were temporarily laid off or furloughed and still had ESI through the employer. By August 2020, the number of temporarily laid-off workers dropped to 6.2 million, but workers permanently laid-off increased from 2.6 million to 4.1 million. Although improvements in the labor market since April 2020 have been favorable for many laid-off workers, a large minority has already lost or remains at risk of losing ESI.
The brief concludes, “Estimating the number of individuals who have lost ESI because of the COVID-19 recession requires estimates of the number of job losers, the number of job losers with ESI, and the number of job losers with ESI whose coverage was not continued by their employer. Considerable uncertainty surrounds all these estimates.”
The brief is available here.
On October 8, 2020, the Kaiser Family Foundation (KFF) released its survey report, 2020 Employer Health Benefits Survey. The survey provides detailed information regarding health insurance premiums, employer and employee contributions, employee cost-sharing, wellness programs and other topics.
Some of the key findings include:
KFF also updated an interactive graphing tool to examine trends in premiums and worker contributions among workers covered by employer-sponsored coverage at different types of firms. The tool uses a web-based interface to the underlying Kaiser/HRET data from the Employer Health Benefits Surveys from 1999-2020.
The survey report and interactive graphic tool are available here.
On October 7, 2020, the U.S. Census Bureau reported that total holdings and investments for the 100 largest state and local government retirement systems increased 7.6% from the previous quarter to $4.09 trillion at the end of the second quarter of 2020.
During the second quarter of 2020, corporate equity (both foreign and domestic) increased 14.3% from $1.39 trillion to $1.58 trillion, corporate bonds (both foreign and domestic) increased 7.0% from $434.8 to $465.4 billion, private equity decreased 11.4% from $501.1 billion to $444.0 billion, federal government securities decreased 10.0% from $466.7 billion to $420.0 billion, indirectly held assets increased 25.7% from $572.6 billion to $719.8 billion, cash and short-term investments decreased 4.8% from $138.8 billion to $132.2 billion, and other investments (such as real estate) increased 8.3% from $303.7 billion to $329.1 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 distribution of cash and security holdings for the second quarter of 2020.
The summary is available here.
On October 5, 2020, David Kausch, Chief Actuary for GRS, submitted a comment letter to the Michigan Department of Treasury regarding uniform actuarial assumptions for Michigan Public Act 202 of 2017 (PA 202) for fiscal year 2021 (FY 2021).
The comment letter is available here.
In September 2020, the Center for Retirement Research (CRR) released its issue brief, 2020 Public Plan Investment Update and COVID-19 Market Volatility. The brief examines public pension investments and the implications of the market downturn in the early spring of 2020 due to the COVID-19 pandemic. According to the brief, although financial markets have recovered from the downturn, most public pension plans will close Fiscal Year (FY) 2020 with an annual return that falls short of actuarial expectations. However, public pension plans typically invest a portion of their assets in U.S. Treasuries, which may be more easily liquidated to cover benefit payments during severe market downturns.
The report concludes, “The market crash raised concerns about public plan liquidity and vulnerability to sharp market downturns. Although many plans have a negative cash flow and may need to sell assets to pay annual benefits, most also maintain a consistent cache of U.S. Treasuries that could be easily liquidated if necessary. So, while public pension plans face many long-term fiscal challenges, most are able to weather sharp downturns relatively unscathed.”
The report is available here.
James Anderson will serve as a panel speaker at the 2020 Conference of Consulting Actuaries (CCA) Annual Meeting. The Public Plans Open Forum session will be a discussion between colleagues on current issues, such as ASOPs, economic assumptions, and other trends. The session will occur on October 28, 2020, 2:30 pm-3:45 pm (EST). For more information go to: https://www.ccactuaries.org/