CBO Reports on Prescription Drug Spending, Use and Pricing

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CBO Reports on Prescription Drug Spending, Use and Pricing

On January 19, 2022, the Congressional Budget Office (CBO) released its report, Prescription Drugs: Spending, Use, and Prices. CBO examined trends in prescription drug spending in the retail market over the period from 1980 to 2018. In addition, the report provides a detailed analysis of trends in spending, use, and prices in the Medicare Part D and Medicaid programs over the period from 2009 to 2018.

The key findings include:

  • Nationwide spending on prescription drugs increased from $30 billion in 1980 to $335 billion in 2018.
  • Consumers’ use of prescription drugs has increased over time mainly due to the greater use of generic drugs.
  • The average net price of a prescription declined from $57 in 2009 to $50 in 2018 in the Medicare Part D program and from $63 to $48 in the Medicaid program over the same time period.

The report is available here.

CRR Publishes Brief on the Effects of COVID on Pensions for Workers without Social Security

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CRR Publishes Brief on the Effects of COVID on Pensions for Workers without Social Security

On January 18, 2022, the Center for Retirement Research at Boston College (CRR) published its brief, Has COVID Affected Pensions for Workers without Social Security? CRR studied the effects of the COVID-19 pandemic on employer-sponsored retirement plans. Of particular interest were state and local pension plans with workers not covered by Social Security (i.e., noncovered plans). The findings indicate that the impact of the COVID-19 pandemic on noncovered public plans has been minimal.

The financial health of public plans depends on investment returns on pension fund assets and contributions from government plan sponsors. In 2021, CRR cites that both noncovered and covered plans exceeded their investment return targets by over 20 percentage points on average. In addition, state and local government plan sponsors have continued to contribute an increasing share of the Actuarially Required Contribution (ARC) even during the pandemic since tax revenues were not substantially impacted.

Other key findings include:

  • In 2021, state and local income tax revenues were aided by stimulus checks, unemployment benefits, and Payroll Protection Program funds disbursed by the federal government during the pandemic;
  • In addition to strong tax revenues, state and local governments received federal stimulus aid (though prohibited its use for bolstering pensions); and
  • Due to strong investment returns and substantial pension contributions, the average funded ratios actually improved.

The brief concludes, “[T]he imme­diate impact of COVID on public plans – both covered and noncovered – has been minimal. And, looking forward, structural headwinds such as negative cash flows and lower-than-expected investment returns pose little risk to the ability of noncovered plans to pay future promised benefits.”

The brief is available here.

Fact Sheets Released on Public Sector Employers’ Implementation of Employee Financial Wellness Programs

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Fact Sheets Released on Public Sector Employers’ Implementation of Employee Financial Wellness Programs

On January 13, 2022, the MissionSquare Research Institute (formerly the Center for State and Local Government Excellence at ICMA-RC or SLGE) released “Fact Sheets on Innovative Public Sector Employee Financial Wellness Programs.” The fact sheets offer innovative concepts for public sector employers interested in improving the financial wellness of their workforce to help reduce debt, save for retirement, or attain other financial goals.

Each fact sheet provides: 1) a summary of the jurisdiction’s approach; 2) outcomes; 3) lessons learned; and 4) future plans. In addition, they provide ideas, advice, and networking opportunities for other public employers that are exploring financial wellness programs.

Over the past year, the Institute partnered with the International Public Management Association for Human Resources (IPMA-HR) and the National Association of State Treasurers Foundation (NASTF), with funding from the Wells Fargo Foundation, to award a total of $1.4 million in grants to establish or improve public employee financial wellness programs. The fact sheets include 24 grantees that represented a broad range of state and local employers from 17 states, the District of Columbia, and the U.S. Virgin Islands, that have been working to develop, implement, and evaluate financial wellness initiatives.

The fact sheets are available here.

 

NIRS Updates Study on DB Plans Being More Cost-Effective Than DC Plans

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NIRS Updates Study on DB Plans Being More Cost-Effective Than DC Plans

On January 6, 2022, the National Institute on Retirement Security (NIRS) released its updated report, A Better Bang for the Buck 3.0: Post-Retirement Experience Drives Cost Advantage for DB Plans over DC Plans. The study found that Defined Benefit (DB) pension plans are significantly more cost-effective than Defined Contribution (DC) plans for providing retirement income. 

This report updates two previous study analyses conducted in 2008 and 2014 comparing DB plans and DC accounts. The new analysis includes two new elements not included in the previous studies: 1) the impact of the current low interest rate environment; and 2) how saving mid-career rather than early career reduces total retirement savings.

According to the report, a typical public sector DB plan has a 49% cost advantage compared to a typical individually directed DC plan. It also indicates that a DB pension costs 27% less than an “ideal” DC plan with below-average fees and no individual investor deficiencies. In addition, 80% of the difference in costs between a DB plan and an individually directed DC plan occurs during the post-retirement period.

The analysis indicates that the primary drivers of cost savings due to DB plans include:

  • Longevity risk pooling– This generates a cost savings of about 7% since DB plans pool longevity risk which enables funding benefits based on the group’s average life expectancy and pay each worker monthly income regardless of how long they live, whereas individuals in DC plans need to save more to protect against living longer than average.
  • Optimally balanced investment portfolios– This generates a cost savings of about 12% since DB plans can maintain an optimally balanced investment portfolio over the long term earning higher investment returns, whereas individuals in DC plans are often advised to shift to lower-risk/lower-return assets as they age.
  • Higher investment returns– This generates a cost savings of about 30% since DB plans generally have higher net investment returns due to professional investment management and lower fees from economies of scale.

The report is available here.

S&P Global Reports on the 2022 Outlook for U.S. States

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S&P Global Reports on the 2022 Outlook for U.S. States

On January 4, 2022, S&P Global released its report, Outlook for U.S. States: Federal Funds Fuel Spending: Will Inflation Impede the Impact? S&P Global reported that U.S. states have a stable view for the coming year; however, positive credit strengths are offset by significant uncertainties. Over the past two years during the pandemic, states have taken actions to balance their budgets mainly due to federal funding. In 2022, the additional risks that may impact credit conditions include: coronavirus variants, inflationary uncertainty, and ongoing employment and supply chain challenges. 

According to S&P Global, “Reserve levels for many states are at all-time highs, with an aggregate $188.6 billion expected to be available by 2022 fiscal year end. Fiscal 2021 ended with 21 states with rainy day or budget stabilization fund balances over 10% of general fund expenditures and fiscal 2022 is set to see that count grow to 27 states. However, these balances may not fully account for the breadth of unspent resources many states carried forward. We believe the combined build-up of reserves and other available resources provide an operating flexibility and liquidity cushion for states to navigate their economic recoveries and emerging budgetary risks.”

The report is available here.

NCPERS Publishes Report on Enhancing the Sustainability of Public Pensions

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NCPERS Publishes Report on Enhancing the Sustainability of Public Pensions

On January 4, 2022, the National Conference on Public Employee Retirement Systems (NCPERS) released its report, Enhancing Sustainability of Public Pensions. The study examines the sustainability valuation to monitor pension plan fiscal conditions. NCPERS indicates that, “The more sustainable pension plans are, the better funded they are. Similarly, the sustainable pension plans have lower contribution rates.”

According to the report, “Based on the latest data (2018), … unfunded liabilities of the state and local pension plans in the United States can be stabilized and made fiscally sustainable by paying them down by about $141 billion or 0.8 percent of the economy. The $141 billion was about 3 percent of unfunded liabilities in 2018.” It adds, “[S]tate and local governments may not have the needed amounts readily available to pay down unfunded liabilities right away. However, they can use stabilization funds to stabilize unfunded liabilities in, say, the next five years and then use the sustainability valuation approach to keep them stable and fiscally sustainable going forward.”  

The report also provides a state-by-state analysis of the sustainability of outstanding debt and unfunded pension liabilities from 2004 to 2018.

The report is available here.

NASRA Updates Brief on State and Local Government Contributions to Statewide Pension Plans for Fiscal Year 2020

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NASRA Updates Brief on State and Local Government Contributions to Statewide Pension Plans for Fiscal Year 2020

On December 31, 2021, the National Association of State Retirement Administrators (NASRA) updated its issue brief, State and Local Government Contributions to Statewide Pension Plans: FY 20. The brief includes: 1) a brief history of public pension contributions; 2) recent public employer contribution experience; and 3) how governance structure may impact funding experience.  

According to the brief, “[On] a national basis, contributions made by employers – states and local governments – in 2020 accounted for nearly three-fourths of all contributions received by public pension plans… [Of] the $8.5+ trillion in public pension revenue since 1991, 39 percent, or more than $3 trillion, came from contributions paid by employers and employees.” 

On average, employer contributions to public pension plans continue to be a small percentage of state and local government spending. In recent years, employer contributions have been growing. Among the statewide pension plans included in the study, the aggregate public employer contributions increased from $120.9 billion in Fiscal Year (FY) 19 to $128.4 billion in FY 20, up 6.2%. 

The Actuarially Determined Contribution (ADC) experience for the plans illustrates the significant improvement of public employers contributing to public pension plans. According to NASRA, “[T]he median percentage of ADC received in FY 19 was 100 percent, and the dollar-weighted average was 95 percent. FY 19 marks the fifth consecutive year in which the aggregate ADC experience was higher than 90 percent.” 

Furthermore, NASRA cited that, “Following the recession of 2007-09 and the market decline of 2008-09, many public pension plans have made changes to their funding policies and practices that have produced increases in required contributions in subsequent years, including implementation of more conservative (aggressive) funding policies; lower investment return assumptions; updated mortality assumptions; and reduced amortization periods.”

For the individual plans included in the analysis, the brief also provides an appendix with the basis of employer contributions and contribution history for FY 11 to FY 20. 

The brief is available here.

MissionSquare Releases Infographic on Public Sector Workforce Trends in 2022

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MissionSquare Releases Infographic on Public Sector Workforce Trends in 2022

On December 31, 2021, the MissionSquare Research Institute (formerly the Center for State and Local Government Excellence at ICMA-RC or SLGE) released its infographic, Six Workforce Trends to Watch in 2022. The Institute researched how public sector employers can manage and support their current workforce as well as attract new key talent.

The infographic provides various strategies and actions that state and local governments can take to improve retention and recruitment. It also focuses on the competitive advantage of public sector employers including: flexibility; remote work opportunities; childcare; paid family leave; and mental health care.  

The key public sector workforce trends include:

  • Focusing on the importance of public sector roles;
  • Monitoring burnout;
  • Supporting sustainable retirement benefits;
  • Exploring beyond traditional benefits;
  • Prioritizing diversity, equity, and inclusion (DEI) goals; and
  • Concentrating on the drivers of the Great Resignation. 

Although the pandemic has been challenging, it has helped to recognize and reinforce the value of local government and the public sector. According to the Institute, strong pension plans are an important benefit provided by public employers to retain and attract employees. It states, “Given the efforts of many governments to pay annual required contributions to their pension plans, along with healthy investment returns, overall public pensions are stable and well positioned heading into the new year.”

The infographic is available here. 

January 2022

IN THIS ISSUE

• Legislative Update
• IRS Makes Changes to Correction Program
• IRS Issues Guidance on Reemploying Retirees and In-Service Distributions
• New Guidance on Coverage of Over-the-Counter COVID-19 Tests
• Prescription Drug and Health Care Spending Transparency Interim Final Regulations
• IRS Proposes ACA Reporting Relief and Deadline Extensions