GAO Reports Phased Retirement Programs Are Valuable but Uncommon

On July 20, 2017, the Government Accountability Office (GAO) released its report, Phased Retirement Programs, Although Uncommon, Provide Flexibility for Workers and Employers. In the report to the U.S. Senate Special Committee on Aging, the GAO recommends that employers should adopt phased retirement programs to ensure that they will not suddenly lose the knowledge and experience of older workers.  The GAO found that only 15% of workers between the ages of 61 and 66 are semi-retired.

In addition, the GAO reviewed a 2016 Society for Human Resource Management (SHRM) survey that indicated: 1) only 5% of its membership offered a formal phased retirement program; 2) 11% offered an informal phased retirement program; and 3) among large employers (with 2,500 to 9,999 workers), 16% offered a formal phased retirement program.  Of those employers that offer phased retirement, they did so to enable knowledge transfer and to manage their workforce more efficiently.  Some employers, that do not offer phased retirement programs, cited concerns about health care costs and regulatory complexities related to federal tax and age discrimination laws.

The report also found that industries with skilled workers or labor shortages are more motivated to offer phased retirement since their workers are difficult to replace. The industries most likely to offer phased retirement include: consulting, education, government, utilities and high technology.  According to the GAO, “While not all researchers agree, it has been suggested by some that as the population ages and the number of baby boomers leaving the labor force increases, there could be a loss of economic productivity.”  Adding, “The availability of phased retirement, by extending the labor force participation, has the potential to provide options that would be beneficial both to the older workers and the overall economy.”

The report is available here.

GASB Proposes Implementation Guidance for Statement No. 75

On July 25, 2017, the Governmental Accounting Standards Board (GASB) issued an Exposure Draft (ED) containing proposed implementation guidance for other postemployment benefit (OPEB) plans and governments applying GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions.  The proposed guide is presented in a “question and answer” format and is intended to clarify, explain or elaborate on the requirements of GASB Statement No. 75.  It also addresses a limited number of issues related to GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans.

In June 2015, GASB approved Statement No. 75, which addresses reporting by governments that provide OPEB to their employees and for governments that finance OPEB for employees of other governments.  It replaces GASB Statement No. 45 and requires governments to report a liability on the face of the financial statements for the OPEB they provide.  The provisions of GASB Statement No. 75 became effective for plan fiscal years beginning after June 15, 2017. Comments on the proposed Implementation Guide are due by September 25, 2017.

The ED is available here.

NCPERS Releases White Paper on Secure Choice Pension Model

On July 25, 2017, the National Conference on Public Employee Retirement Systems (NCPERS) released its White Paper, Secure Choice 2.0: States Blazing a Path to Retirement Security for All. The paper provides updated information regarding the progress of Secure Choice Plans (SCP) including: 1) the history of the Secure Choice approach; 2) information related to several state initiatives in progress; and 3) insight on various challenges and obstacles for states.  (Note: In May 2017, President Trump signed a bill that repealed regulations enacted during the Obama administration that exempted state-run retirement savings programs for the private sector from ERISA.)  The paper also includes appendixes on state and local developments, model legislation, projection models for various savings scenarios, and websites for other organizations engaged in relevant research and analysis.

Since 2012, 40 states have analyzed or initiated other preliminary steps toward the creation of a retirement savings program for private sector workers. In July 2017, Oregon became the first state to begin accepting private sector workers in a “Secure Choice-inspired” automatic savings program.  In addition, other programs have been enacted or are being developed in California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, Vermont and Washington.  Generally, the programs are intended to operate independently from the state and will be paid for through retirement account fees.

According to Hank Kim, NCPERS’ Executive Director and Counsel, “Our 2011 white paper galvanized efforts in a number of states that had been frustrated with the federal government’s lack of leadership on retirement policy.” Adding, “We have made tremendous progress since 2012 as state after state has embraced the goal of creating paths to retirement savings for millions of private-sector workers.”

The White Paper is available here.

NASRA Updates Summary of Changes in State and Selected Local Public Pension Plans

In August 2017, the National Association of State Retirement Administrators (NASRA) released its updated summary of significant changes in public pension plans since 2016, Selected Approved Changes to State and Selected Local Pensions.  The summary extends the 2016 listing of statewide pension reforms presented in Significant Reforms to State Retirement Systems. The resource listing was compiled by NASRA based on information provided by individual retirement systems and the National Conference of State Legislatures (NCSL).  The summary provides selected approved changes in contributions, benefits and eligibility requirements as applicable for 19 individual retirement systems.

The listing is available here.

CRR Expects State and Local Pension Plan Funding to Improve in 2017

On August 1, 2017, the Center for Retirement Research (CRR) at Boston College released its issue brief, State and Local Pension Plan Funding Sputters in FY 2016. Written by Jean-Pierre Aubry, Caroline V. Crawford, and Alicia H. Munnell, the brief reports that the aggregate funded status of state and local pension plans declined slightly in fiscal year 2016 due to steady growth in liabilities while sluggish stock market performance led to slow asset growth. However, state and local pension funding is expected to improve in 2017 due to stronger market returns.

According to the CRR, the estimated aggregate ratio of assets to liabilities for the 170 plans in the Public Plans Database (PPD) declined from 73% in 2015 to 72% in 2016, as measured by the traditional GASB standard under GASB Statement No. 25 that uses a smoothed value of assets. However, under the new standard under GASB 67 that values assets at market, the funding ratio declined from 73% in 2015 to 68% in 2016.

Other key findings include:

  • Generally, public pension plans are in a better position than they were immediately following the economic downturn;
  • The aggregate required contributions as a percentage of payroll has increased from 12.5% in 2008 to 18.6% in 2016;
  • After the economic downturn, plan sponsors have been increasing the percentage of required contributions paid reaching 92% in 2016;
  • Annual investment return assumptions continue to be adjusted downward to an average of 7.6% in FY 2016; and
  • For the aggregate funded ratio to return to above 80%, plan sponsors will need to increase their contribution efforts and investment returns must consistently meet or exceed expectations over a sustained, longer term.

The CRR concludes, “The revival of markets in 2017 has helped pension plan assets recover. But looking forward, the funded status of plans will depend heavily on both future investment performance and adequate contributions. In 2021, assuming plans achieve their expected returns, they are projected to be 72.9% funded under the old GASB standard compared to 71.8% today, and 70.6% percent funded status under the new GASB standard compared to 67.9% today. To achieve more meaningful progress in funded levels going forward, plans need to re-evaluate the way their required contributions are calculated.”

The report is available here.

NCPERS Reports Public Pensions are Beneficial for Taxpayers

On August 14, 2017, National Conference on Public Employee Retirement Systems (NCPERS) released its report, Public Pensions Are a Good Deal for Taxpayers.  The latest report in the NCPERS Research Series addresses critics’ arguments about the funding of public pension plans and explains how those plans help to benefit U.S. taxpayers.  According to the report, public pension plans are resilient, pose little burden on taxpayers, and help to stimulate the U.S. economy.  In addition, it indicates that taxpayers benefit from about $3.7 trillion of pension fund assets that are invested in the U.S. economy by public pension funds.

Taxpayers’ contributions are fully or partially offset by the tax revenues generated by public pension investments in the community in addition to local spending by retirees that receive pension payments. Public pensions are funded in advance, over many years, with investment earnings and employee contributions driving asset growth.  Taxpayers pay only about 20 cents on the dollar for pension benefits with the remaining 80 cents per dollar of benefit being paid from investment earnings and employee contributions.

In addition, the report cites recent research by the National Institute on Retirement Security (NIRS) that shows every dollar paid in pension benefits creates $2.21 in economic output. In 2014, taxpayers contributed $120.5 billion toward state and local pension funds while the economic activity generated by retiree spending resulted in $189.7 billion in tax revenues (based on public and private sector pensions for federal, state and local taxes).

The report concludes, the “dismantling of pensions contributes to rising income inequality, a sluggish economy, and greater economic volatility… If governments continue to dismantle public pensions, they will inflict $3 trillion in damage on our economy by 2025. In short, while public pensions are cost-effective and beneficial, dismantling pensions is costly and short-sighted for taxpayers.”

The report is available here.

HSA Assets Reach $42.7 Billion Increasing 23% as of June 2017

On August 16, 2017, Devenir Research released its report, 2017 Midyear HSA Market Statistics & Trends.   According to Devenir’s analysis of the top 100 health savings account (HSA) providers, HSA assets grew 23% from July 1, 2016 through June 30, 2017 to $42.7 billion.  In addition, the number of accounts grew 16% to 21 million.

In 2016, HSA holders and employers contributed $25.5 billion to the accounts, and participants withdrew $19.8 billion. The report indicates that one-third of all HSA dollars contributed to an account this year were from an employer.  Employers contributed an average of $719 and employees contributed an average of $1,111.  By the end of 2017, the HSA providers expect assets to grow 21%.  By the end of 2019, HSA assets are projected to exceed $60 billion, and will be held in about 30 million accounts.

The report’s Executive Summary is available here.

NIRS Updates Study Finding Public Employees Strongly Support DB Plans

On August 23, 2017, the National Institute on Retirement Security (NIRS) released its research report, Decisions, Decisions: Retirement Plan Choices for Public Employees and Employers.  The new research updates a 2011 study finding that public employees, when given a choice, strongly prefer defined benefit (DB) pensions over defined contribution (DC) plans.  According to the report, most public employees still participate in a DB plan.  Although participation has declined somewhat, it still remains strong covering 75% of full-time employees in 2016, down from 93% in 1986.  However, a small number of states have begun offering employees a choice of primary retirement plans, including: 1) a traditional DB pension plan; 2) a 401(k)-type DC individual account; or 3) a combined DB/DC plan.  The report also indicates that public employees highly value DB pension benefits, and that these benefits remain the most cost-effective means to fund a retirement benefit.

Other key findings include:

  • When given a choice between a primary DB plan and DC plan, public employees overwhelmingly choose the DB pension plan;
  • DB plans are more cost efficient than DC plans due to higher investment returns and the pooling of longevity risk;
  • States considering shifting from a DB plan to a DC plan will not close any funding shortfalls and may actually increase retirement costs;
  • Typically, employers bear most of the risk in DB plans, and employees bear most of the risk in DC plans; and
  • Public sector DB plans have always had cost sharing, and employees have experienced increases in their portion of plan contributions in recent years.

The study analyzes eight state retirement systems that offer a DB/DC choice including: the Colorado Public Employees’ Retirement Association, Florida Retirement System, Michigan Public School Employees Retirement System, North Dakota Public Employees Retirement System, Ohio Public Employees Retirement System, State Teachers Retirement System of Ohio, South Carolina Retirement Systems, and Utah Retirement System.  Among the eight plans studied, on average 85% of new public employees enrolled in a DB plan as compared to 14% who enrolled in a DC plan.  The following table shows the new hire enrollments by retirement system in 2015:

 New Hire Enrollments

System

DB Plan DC Plan

Combined DB/DC Plan

Colorado PERA

88%

12%

Not offered

Florida RS

76%

24%

Not offered

Michigan PSERS

75%

25%

DB is a combination plan

North Dakota PERS

98%

  2%

Not offered

Ohio PERS

95%

  4%

1%

Ohio STRS

89%

  9%

2%

South Carolina RS

82%

18%

Not offered

Utah RS

80%

20%

DB is a combination plan

Source: National Institute on Retirement Security

 

The full report is available here.

National Center for Health Statistics Finds More Are Insured under ACA, but Have More Out-of-Pocket Costs

On August 29, 2017, the National Center for Health Statistics (NCHS) at the U.S. Department of Health and Human Services’ (HHS) Center for Disease Control and Prevention (CDC) released its report, Health Insurance Coverage: Early Release of Estimates From the National Health Interview Survey, January-March 2017. The National Health Interview Survey (NHIS) data are used widely throughout the HHS to monitor trends in illness and disability and to track progress toward achieving national health objectives.

According to the National Health Interview Survey, in the first quarter of 2017, about 28.1 million (8.8%) individuals of all ages were uninsured (down 20.5 million than in 2010). Among those ages 18-64, 12.1% were uninsured; 18.9% had public coverage; and 70.5% had private health insurance coverage (including 4.8% through the Health Insurance Marketplace or state-based exchanges).

Of those individuals under age 65 with private health insurance, 42.3% enrolled in a high-deductible health plan (HDHP), up from 39.4% in 2016. However, the individuals most likely to enroll in a HDHP are also the least able to afford unexpected medical costs.  Commonly, low-income Americans likely choose coverage with high out-of-pocket costs because those plans generally have a lower monthly premium.  About 50% of the estimated 20.5 million Americans who obtained coverage under the Affordable Care Act (ACA) were able to do so due to their state’s expansion of Medicaid eligibility.

The report is available here.