National Organizations Release ASOP 4 Toolkit for Measuring Pension Obligations and LDROM

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National Organizations Release ASOP 4 Toolkit for Measuring Pension Obligations and LDROM

On March 27, 2023, the National Conference on Public Employee Retirement Systems (NCPERS) released an announcement that, in a collaborative effort with the National Association of State Retirement Administrators (NASRA), National Council on Teacher Retirement (NCTR) and National Institute on Retirement Security (NIRS), they formed a workgroup to develop the ASOP 4 Toolkit: Measuring Pension Obligations and LDROM. The workgroup also comprised over 30 public pension directors, senior staff, actuaries and other communications experts that contributed to the development of the toolkit.

In December 2021, the Actuarial Standards Board (ASB) adopted revisions to ASOP No. 4 entitled Measuring Pension Obligations and Determining Pension Plan Costs or Contributions. The revised standard is effective for any actuarial report with a measurement on or after February 15, 2023 that is issued on or after that date.

The recent updates to ASOP 4 also included a new Low-Default-Risk Obligation Measure (LDROM) calculation and disclosure. The LDROM was added to provide guidance regarding the calculation of this measure when the actuary is performing a pension plan actuarial valuation.

According to the announcement, the toolkit is endorsed by the Government Finance Officers Association (GFOA) and is intended to “help pension funds communicate the new requirements of ASOP 4, avoid the misunderstanding and misuse of the new disclosure, and communicate the benefits of a well-diversified investment portfolio.” It adds that the toolkit “is an essential resource for pension funds to educate policymakers and others on the best use of this new disclosure to help avoid misunderstandings concerning pension funding.”

The toolkit includes:

  • A Fact Sheet on the Low-Default-Risk Obligation Measure (LDROM);
  • Sample LDROM Language for Valuation Reports; and
  • Frequently Asked Questions About LDROM.

Joe Newton, Pension Market Leader and member of the GRS Office of the Chief Actuary, participated in the workgroup.

Further information is available here.

HHS Releases Issue Brief on Health Coverage Under the Affordable Care Act

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HHS Releases Issue Brief on Health Coverage Under the Affordable Care Act

On March 23, 2023, the Assistant Secretary for Planning and Evaluation (ASPE) of the U.S. Department of Health and Human Services (HHS) released its issue brief, Health Coverage Under the Affordable Care Act: Current Enrollment Trends and State Estimates. The brief provides current estimates of health insurance coverage enrollment through the Affordable Care Act (ACA) Marketplaces, Medicaid expansion, Children’s Health Insurance Program (CHIP), and the Basic Health Program (BHP).

According to the brief, since the implementation of the ACA in 2014, the highest total on record of 40.2 million Americans were enrolled in coverage based on 2022 and early 2023 enrollment data. This represents more than 9.3 million individuals that enrolled as compared with those in 2021 (a 30% increase) and 27.6 million more individuals enrolled as compared with those that enrolled in 2014 (a 219% increase). The brief also indicated that 4.2 million more individuals gained ACA-related coverage with most of the coverage gains being equal among the Marketplace and Medicaid expansion.

The brief is available here.

Groom Law Group Summarizes SECURE 2.0 Changes for Tax-Exempt Entities and Church Plans

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Groom Law Group Summarizes SECURE 2.0 Changes for Tax-Exempt Entities and Church Plans

On March 13, 2023, the Groom Law Group released its alert, Tax-Exempt and Church Plan Highlights from SECURE 2.0. The alert summarizes some of the most significant changes of the SECURE 2.0 Act of 2022 (SECURE 2.0) that will impact tax-exempt entities and church plans.

Among other changes, SECURE 2.0 updated 403(b) plan rules to conform more closely with those of 401(k) plans. The act also provided changes for 457(b) plan rules, of which many will apply only to governmental 457(b) plans.  In addition, SECURE 2.0 made changes for church plans that do not elect to be subject to ERISA, referred to as “Non-Electing Church Plans.” (Note: “Electing Church Plans” are generally treated the same as other qualified plans and were not addressed in the alert.)

The alert covered key changes that are specific to 403(b) plans including provisions related to: 1) multiple employer plans; 2) long-term, part-time workers; 3) enhanced 403(b) plans; and 4) hardship withdrawal rules. It also summarized some other key changes for tax-exempt plans and church plans including: 1) increase in the Required Minimum Distributions (RMDs) age; 2) increase in the catch-up contribution limits; 3) recovery of plan overpayments; and 4) expansion of employee plans compliance resolution system.

Groom Law cautions that, “Many SECURE 2.0 changes are highly technical and complex, and will likely require more guidance before they can be implemented. Churches and tax-exempt entities will want to consider the impact of these changes on their retirement plans.”

The alert is available here.

NASRA Updates Brief on Public Pension Plan Investment Return Assumptions

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NASRA Updates Brief on Public Pension Plan Investment Return Assumptions

In March 2023, the National Association of State Retirement Administrators (NASRA) updated its standing issue brief, Public Pension Plan Investment Return Assumptions. NASRA examined public pension investment return data and found that recent changes in economic and financial conditions have caused many public plans to reexamine their investment return assumptions. 

Since fiscal year (FY) 2010, all of the 131 plans measured have reduced their assumed rate of return with 106 of those plans (81%) doing so since FY 2018. For the 131 plans, the average return assumption is 6.93% in FY 2023 down from 7.33% in FY 2018. The brief also provides a table showing the investment return assumptions that are in use, or announced for use, by the 131 plans included in the Public Fund Survey as of March 2023.  

It also discusses how the investment return assumption is established and evaluated. Then, it compares these assumptions with public funds’ actual investment experience and the challenging investment environment for public retirement systems.  

The brief emphasizes that a governmental plan’s investment return assumption is focused on the long-term, typically an investment horizon of 30 to 50 years. Investment returns are important because investment earnings account for a majority of the revenues received by most public pension plans. According to the brief, since 1991, public pension funds have accrued an estimated $10.1 trillion in revenue. Of that amount, investment earnings account for $6.5 trillion (64%), employer contributions account for $2.5 trillion (25%), and employee contributions account for $1.06 trillion (11%).   

Typically, a 25-basis point reduction in the investment return assumption will increase the cost of a plan that has a cost-of-living adjustment (COLA) by 3% of pay (i.e., a reduction from 7.5% to 7.25% will increase the cost from 10% to 13% of pay). For a plan without a COLA, the return assumption will increase the cost by 2% of pay. 

The brief concludes, “The investment return assumption is the single most consequential of all actuarial assumptions in terms of its effect on a pension plan’s finances. The sustained period of low interest rates, which lasted for over a decade since 2009, combined with lower projected returns for most asset classes, has caused many public pension plans to reduce their long-term expected investment returns.”  

The brief is available here.

MissionSquare Research Institute Finds Many Public Sector Workers Are Concerned About Inflation

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MissionSquare Research Institute Finds Many Public Sector Workers Are Concerned About Inflation

On March 2, 2023, the MissionSquare Research Institute released its survey report, State and Local Government Employees: Morale, Public Service Motivation, Financial Concerns, and Retention. The survey found that about 64% of public service workers are concerned about inflation and their ability to sustain the current cost of living. In addition, nearly 58% worry about inflation decreasing the value of their savings.

Other key findings include:

  • Overall, respondents reported several factors that attracted them to public sector employment, such as job security (92%), job satisfaction (87%) and retirement benefits (86%).
  • About 28% of respondents reported that they currently feel very or extremely financially secure.
  • Among the 87% of respondents with one or more types of debt, about 77% report that their level of debt prevents them from saving more for retirement.
  • 66% of respondents reported currently having positive morale regarding work, with 24% reporting very positive morale. However, 41% of respondents are considering changing jobs in the near future.
  • Over 77% agreed that the increase in workers voluntarily leaving their jobs has increased their own workload, with 34% reporting a significant effect.
  • To retain more employees, 74% of respondents recommended that their organization increase salaries, while 54% recommended that employers offer/increase bonuses and 45% recommended increasing employee appreciation and work recognition.

The results are based on a national online survey of over 1,000 state and local government employees conducted by Greenwald Research in October and November of 2022.

The report is available here.