NASRA/NCTR Release Alert on SECURE 2.0 Expected to Pass with Year-End Spending Bill

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NASRA/NCTR Release Alert on SECURE 2.0 Expected to Pass with Year-End Spending Bill

On December 21, 2022, the National Association of State Retirement Administrators (NASRA) and the National Council on Teacher Retirement (NCTR) released their alert regarding the “SECURE 2.0” Retirement Security Package Expected to Pass with Omnibus Spending Bill. On December 20, 2022, the Senate Appropriations Committee released the Omnibus Spending Bill, known as SECURE 2.0. The retirement security package merges many retirement-related bills that cleared the House and Senate Committees earlier in 2022. The legislation is expected to be passed by Congress and signed into law by President Biden soon.

The alert presents several notable provisions that may impact state and local government retirement plans, including among others: increases in the Required Minimum Distributions (RMDs) age; modifications in the Healthcare Enhancement for Local Public Safety (HELPS) Retirees Act; as well as other public safety provisions and public defined contribution (DC) plan changes.

In addition, the alert provides links to the full bill text and section-by-section summary.

The alert is available here.

CBO Releases 2022 Long-Term Social Security Projections

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CBO Releases 2022 Long-Term Social Security Projections

On December 16, 2022, the Congressional Budget Office (CBO) released its report, 2022 Long-Term Projections for Social Security. The report updates projections regarding the long-term revenues and outlays of the Social Security program under the CBO’s 10-year baseline budget projections through 2033, and the extended 75-year long-term projections through 2096.

The analysis includes Social Security’s Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI). In 2021, outlays from the OASI fund exceeded revenues whereas, for the DI fund, the outlays were similar to revenues.

The report states, “If the gap between the trust funds’ outlays and income occurs as CBO projects, then the balance in the trust funds will decline to zero in 2033 and the Social Security Administration will no longer be able to pay full benefits when they are due. Therefore, another set of projections reflects a scenario in which Social Security outlays are limited to what is payable from annual revenues (from payroll taxes and from income taxes on benefits) after the trust funds are exhausted.”  

According to the report, the gap between Social Security’s outlays and revenues widens over the long-term period. In 2022, total spending on the Social Security program is equal to 5.0% of gross domestic product (GDP) and by 2096 spending is projected to reach 7.0% of GDP. However, revenues remain about 4.6% over the same time period.

The report is available here.

CMS Office of the Actuary Releases 2021 National Health Expenditures Report

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CMS Office of the Actuary Releases 2021 National Health Expenditures Report

On December 14, 2022, 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 2.7% in 2021 and reached $4.3 trillion, which was slower than the increase of 10.3% in 2020. As a share of the gross domestic product (GDP), health care spending increased 10.7% in 2021.  

In 2021, health care spending for the broad categories of services and products include:

  • Hospital care spending increased 4.4% to $1.3 trillion, down from 6.2% in 2020;
  • Physician and clinical services spending increased 5.6% to $864.6 billion, down from 6.6% in 2020; and
  • Retail prescription drug spending increased 7.8% to $378.0 billion, up from 3.7% in 2020. 

In 2021, the growth in federal government spending decreased 3.5%, compared to an increase of 36.8% in 2020. The federal government’s decreased spending for health care is mainly due to a reduction in federal COVID-19 funding, and to a lesser extent, a decrease in federal public health expenditures and a decline in federal Medicaid funding. Private businesses’ health care spending increased 6.5% in 2021, up from 2.9% in 2020; households’ health care spending increased 6.1% in 2021, up from 1.2% in 2020; and state and local government health care spending increased 5.8%, up from 1.9% in 2020. 

Further information is available here. 

CRS Reports on Potential Impacts of Proposed Policy Changes in Social Security Computation Years

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CRS Reports on Potential Impacts of Proposed Policy Changes in Social Security Computation Years

On December 12, 2022, the Congressional Research Service (CRS) released its report, Social Security: Potential Impacts of Changes in Computation Years. The report discusses Social Security’s computation years benefit calculation formula under the current law as well as the provision’s legislative background. The number of computation years is used as one factor used for calculating an individual’s Social Security monthly benefit amount.

Furthermore, the report presents various policy options that would change the number of computation years. It also includes an analysis of the effects on beneficiaries and related costs to the Social Security program.

Some proposals for policy changes in the number of computation years used in the Social Security benefit calculation would include:

  • Increasing the number of computation years, which may encourage individuals to work longer, improve individual equity, and improve funding. However, it may result in years of lower earnings which would reduce the monthly benefit payable to some beneficiaries; or
  • Decreasing the number of computation years for certain groups (i.e., parents caring for small children), which may increase the monthly benefits for the target group and help to improve income security. However, it may result in individual equity issues and increased financial outlays from the Social Security program.

The report is available here.

NASRA Updates Brief on State and Local Government Contributions to Statewide Pension Plans for Fiscal Year 2021

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NASRA Updates Brief on State and Local Government Contributions to Statewide Pension Plans for Fiscal Year 2021

On December 7, 2022, the National Association of State Retirement Administrators (NASRA) updated its issue brief, State and Local Government Contributions to Statewide Pension Plans: FY 21. 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 2021 accounted for 76 percent of all contributions received by public pension plans…. [Of] the $10+ trillion in public pension revenue since 1992, 36 percent, or more than $3.5 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 $128.9 billion in Fiscal Year (FY) 20 to $137.8 billion in FY 21, up 6.9%.  

The update notes that ASOP No. 4 defines an actuarially determined contribution (ADC) as, “A potential payment to the plan as determined by the actuary using a contribution allocation procedure. It may or may not be the amount actually paid by the plan sponsor or other contributing entity.”

According to NASRA, “the median percentage of ADC received in FY 21 was 100 percent, and the dollar-weighted average grew to 99.3 percent. This marks the highest percentage of ADC received since FY 01, and the seventh 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 changed their funding policies and practices, resulting in increases in required contributions. Such changes include implementation of more 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 12 to FY 21.   

The brief is available here.  

CRR Releases Brief on the Effect of Cost-of-Living on Retirement

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CRR Releases Brief on the Effect of Cost-of-Living on Retirement

On December 6, 2022, the Center for Retirement Research at Boston College (CRR) released its brief, How Does Local Cost-of-Living Affect Retirement? According to the report, U.S. workers in high cost-of-living areas earn more than those with similar skills in low cost-of-living areas. In addition, CRR reported that compensation levels affect Social Security benefits that replace a smaller share of wages for higher compensation workers and do not account for prices in the local labor market.

The analysis also indicated that:

  • Households in high-cost areas may save more, work longer or move to a low-cost area when they retire; and
  • Social Security replacement rates are lower in high-cost areas, but the gap is relatively modest.

The brief is available here.