Congress Passes Tax Cuts and Jobs Act

On December 19, 2017, both the U.S. House and U.S. Senate passed the Tax Cuts and Jobs Act (H.R. 1). On December 20th, the House took a final vote on the measure due to slight changes in the Senate-passed version. President Trump is expected to sign the legislation into law.

The tax reform legislation includes several significant changes affecting retirement, executive compensation, and health and welfare plans. The January 2018 issue of GRS Insight will discuss the impact of tax reform on pension and health care plans.

Further information on H.R. 1 is available here.

On December 19th, Groom Law Group also published a comparison chart of various provisions under current law as compared with those in the House and Senate tax reform bills and the tax reform conference committee report.

The chart is available here.

GASB Releases Implementation Guide for Other Postemployment Benefits

On December 19, 2017, the Governmental Accounting Standards Board (GASB) issued Implementation Guide No. 2017-3 for other postemployment benefit (OPEB) plans, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (and Certain Issues Related to OPEB Plan Reporting).

The 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, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. The guide also addresses a limited number of issues related to GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans.

The questions and answers address Category B authoritative guidance under generally accepted accounting principles (GAAP).  The guide also provides several appendices, including: 1) background information; 2) illustrative material related to GASB Statement No. 75 regarding certain calculations, note disclosures, and other information; and 3) codification instructions.  The guide provides detailed answers on various topics, including but not limited to:

  • Scope and applicability of the guidance;
  • Considerations regarding the identification of special funding situations;
  • Measurement of defined benefit OPEB liabilities of employers and nonemployer contributing entities;
  • OPEB expense and deferred inflows and outflows of resources related to OPEB;
  • Note disclosures and required supplementary information; and
  • Transition to the new standards.

The guide is available on the GASB’s web site.

NASBO Releases 2017 Fiscal Survey of States

​On December 14, 2017, the National Association of State Budget Officers (NASBO) released their semi-annual report, Fiscal Survey of States, Fall 2017.  The report updates information on the states’ fiscal conditions, including aggregate and individual state data on general fund receipts, expenditures, and balances.  The survey was conducted by NASBO and completed by state budget officers in all 50 states over the period from August 2017 through October 2017.

According to the report, after two consecutive years of relatively weak revenue growth, the states enacted cautious budgets for fiscal 2018. The fiscal conditions continue to vary significantly among states based on demographic trends, economic performance and state policies.

Total general fund revenues increased 2.3% in fiscal 2017 with 27 states having revenue collections below budget forecasts.  In fiscal 2018, general fund revenues are projected to increase by 4.0% to $830 billion, up from $812 billion in fiscal 2017.

In addition, enacted state budgets for fiscal 2018 show general fund expenditures increasing 2.3% to $830 billion.  The NASBO report indicates that increases in state general fund spending for fiscal 2018 totaling $12.7 billion will be directed mainly to K-12 education. Enacted 2018 budgets also indicate aggregate spending increases in all areas of state budgets, including higher education, corrections, transportation and public assistance.

The survey also reported on “total balances” which include year-end balances and any budget stabilization funds that the states have set aside for use in a financial downturn.  In fiscal 2017, total balances decreased to $71.3 billion since some states drew down prior year ending balances and/or used rainy day funds to help with spending demands or budget shortfalls.  In fiscal 2018, total balances are expected to further decline to $67.0 billion.

Most state balances in rainy day funds have been improving.  In fiscal 2018, total rainy day fund balances are expected to increase, while the median as a share of expenditures declines slightly to 5.1%.  The median state’s rainy day fund balance was 5.2% of general fund expenditures in fiscal 2017 as compared to 1.9% in fiscal 2011.

In addition, the report found that 22 states enacted net mid-year budget tax cuts totaling $3.5 billion in fiscal 2017, marking the highest number of states reporting net tax cuts since fiscal 2010.  States’ enacted tax and fee changes are estimated to total $9.9 billion in additional revenues. Those with the largest increases in taxes and fees were California and Illinois.  Most of the new revenues were due to personal and corporate income tax increases in Illinois totaling $4.4 billion. The majority of tax decreases enacted were modest with the most significant cuts in Maine, Minnesota and Tennessee.

Fiscal 2018 budgets expect revenues to improve in conjunction with moderate economic growth.  The report concludes, “States also continue to face uncertainty with respect to the federal budget and tax policy changes that can have numerous implications for state budgets in both the short and longer terms.”

The full report and summary are available here.

NASRA Updates Issue Brief on State Hybrid Retirement Plans

​In December 2017, the National Association of State Retirement Administrators (NASRA) released its issue brief State Hybrid Retirement Plans, which updates an earlier version published in November 2016.  The brief provides new information on public-sector retirement systems that have established hybrid plans since the previous version was released.  While the majority of public employee retirement systems are traditional defined benefit plans, some public-sector plans are considering hybrid plans that contain elements of both defined benefit (DB) and defined contribution (DC) plans.

The brief examines two types of hybrid plans: 1) cash balance plans that combine elements of a traditional DB plan and individual accounts into a single plan; and 2) “DB+DC” plans that combine a smaller traditional DB pension plan with separate individual DC retirement savings accounts.

In addition, the updated brief features a map that illustrates the percentage of public employees who participate in mandatory or optional hybrid plans in states that administer such plans for groups of general, public safety or K-12 educational employees.

The brief also provides overviews of cash balance and DB+DC plans that have been established in various states, with some dating back several decades.  According to the brief, public-sector hybrid plans have diverse combinations of retirement plan designs to address the cost and risk factors of various state or local governments.  However, most continue to include features that meet fundamental retirement plan objectives including: mandatory participation, shared financing, professionally managed pooled investments, benefit adequacy and lifetime benefit payouts.  Typically, traditional public-sector DB plans that contain hybrid plan elements include benefits or employee contributions that are linked to the plan’s investment performance or actuarial condition.

As of March 2017, the U.S. Department of Labor’s Bureau of Labor Statistics reported that about 50% of the private-sector workforce participates in employer-sponsored retirement plans.  By comparison, nearly all state and local government workers have mandatory retirement plan participation.

The brief is available here.

Commonwealth Fund Releases Affordable Care Act Tracking Survey Findings

On December 12, 2017, the Commonwealth Fund released its issue brief, Is the Affordable Care Act Helping Consumers Get Health Care? The brief provides the findings from the Commonwealth Fund Affordable Care Act Tracking Survey from March 2017 to June 2017. This survey is the fifth in a series to track the implementation and impact of the Affordable Care Act (ACA).

With ACA open enrollment in progress, the Commonwealth Fund’s latest ACA Tracking Survey focuses on: 1) enrollees’ ability to access care; 2) satisfaction with provider networks; 3) ease of finding a new physician; and 4) attaining appointments with physicians and specialists.

The key findings include:

  • 65% of individuals who used their ACA plan to acquire health care reported that they would not have been able to access or afford this care prior to enrolling;
  • 87% of those with coverage through the ACA marketplaces or Medicaid are satisfied with their choice of doctors;
  • 64% of those who tried to find a new primary care doctor found that it was relatively easy to do; and
  • 74% of those who tried to make a primary care doctor appointment and 59% who tried to make a specialist appointment were able to do so within two weeks.

Between March 2017 and June 2017, a survey research firm (SSRS) contacted a random, nationally representative sample of over 4,800 U.S. adults ages 19 to 64, including about 1,200 adults ages 19 to 64 who had either marketplace or Medicaid coverage.

The brief is available here.

CRR Issues Brief on Life Expectancy

On December 12, 2017, the Center for Retirement Research at Boston College (CRR) published its issue brief, Why Has U.S. Life Expectancy Fallen Below Other Countries? In recent decades, U.S. life expectancy at age 65 has been falling behind other high-income countries, predominantly for women. This is mainly due to the U.S. having higher rates of obesity and smoking.

Other key findings include:

  • Consequently, the U.S. has made less progress at reducing deaths related to diabetes, respiratory diseases and strokes.
  • If U.S. obesity and smoking rates had been the same as those of its peer countries, U.S. life expectancy would have exceeded the average until recently.
  • In the future, smoking is no longer a major contributor to the life expectancy gap, but rather the challenge of controlling obesity.
  • Consequently, the U.S. has made less progress at reducing deaths related to diabetes, respiratory diseases and strokes.
  • If U.S. obesity and smoking rates had been the same as those of its peer countries, U.S. life expectancy would have exceeded the average until recently.
  • In the future, smoking is no longer a major contributor to the life expectancy gap, but rather the challenge of controlling obesity.

The report concludes, “Whether life expectancy in the United States can catch up to that of other high-income countries may depend on its ability to curb the prevalence of obesity and its harmful effects.”

The brief is available here.  

Federal Reserve Reports Public Pension Assets Reach Record $4.16 Trillion in the Third Quarter of 2017

On December 8, 2017, the Board of Governors of the Federal Reserve released its Financial Accounts of the United States statistical report for the third quarter of 2017.  On page 99, the report shows that state and local government employee retirement fund assets totaled a record $4.16 trillion on September 30, 2017, up from $3.84 trillion on September 30, 2016, an increase of $320 billion (or 8.3% based on the unrounded asset values).  Moreover, state and local retirement funds’ holdings of corporate equities totaled $2.55 trillion (61.3% of total assets) on September 30, 2017, up from $2.31 trillion (60.2% of total assets) on September 30, 2016.

The Federal Reserve’s report is available here.

U.S. Senate’s Special Committee Reports on Aging Workforce

On December 7, 2017, the U.S. Senate’s Special Committee on Aging released its report, America’s Aging Workforce: Opportunities and Challenges. The report examines the growth and diversification of the aging American workforce and addresses the challenges and opportunities as well as corresponding policy issues.

Key findings include:

  • The number of older workers is increasing at a rate that outpaces the overall growth of the U.S. workforce. In 2016, 18.6% of those over age 65 were working.
  • Before full-time retirement, many older workers transition to part-time positions or become self-employed.
  • The aging workforce is faced with various challenges such as age discrimination, inadequate training opportunities, managing health conditions and disabilities, and financially preparing for retirement.
  • Typically, older workers have improved health and well-being.

The report concludes, “Looking ahead, policies must be responsive to an aging workforce. Supportive policies can help workers leverage benefits and overcome the challenges in ways that benefit not only workers and their families, but their employers, their communities, and the nation overall.”

The report is available here.

U.S. Health Care Spending Growth Increases by 4.3% in 2016

On December 6, 2017, 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 4.3% in 2016 (down from 5.8% in 2015) and reached $3.3 trillion or $10,348 per person.  As a share of the gross domestic product (GDP), health care spending rose to 17.9%, up from 17.7% in 2015.

In 2016, health care spending growth decelerated largely attributed to faster growth in 2014 and 2015 for coverage expansions under the Affordable Care Act (ACA) and strong retail prescription drug spending.

Projected growth in health care spending in 2016 and beyond is driven by projected faster growth in medical prices (from historically low growth of 0.8% in 2015 to nearly 3% in 2025). This faster expected growth is partially offset by projected slow growth in the use and intensity of medical goods and services. Overall, annual health care spending is expected to grow 5.4% in 2017, and reach 5.9% in 2018-2019.  For 2016 through 2025, the average annual projected growth is 5.6%.

In 2016, health care spending for the broad categories of services and products include:

  • Hospital care spending increased 4.7% to $1.1 trillion, down from 5.7% in 2015;
  • Physician and clinical services increased 5.4% to $664.9 billion, down from 5.9% in 2015;
  • Other professional services increased 4.7% to $92.0 billion, down from 5.9%;
  • Dental services increased 4.6% to $124.4 billion, up from 4.4%; and
  • Prescription drugs increased 1.3% to $328.6 billion, down from 8.9%.

In 2016, households accounted for 28% of total health care spending; the federal government accounted for 28%; private businesses (including the employer’s share of health insurance premiums) accounted for 20%; and state and local governments accounted for 17%.  The growth in federal government spending slowed increasing 3.9% in 2016, down from 8.9% in 2015.  The federal government’s decreased spending for health care is mainly due to slower federal Medicaid spending and lower Medicaid enrollment growth in 2016.

The report concludes, “…future health care expenditure trends are expected to be mostly influenced by changes in economic conditions and demographics, as has historically been the case.”

Further information is available here.

CRS Releases Social Security Primer

On November 30, 2017, the Congressional Research Service (CRS) released its Social Security Primer. The CRS report provides an overview of Social Security financing and benefits under current law. According to CRS, there were about 62 million Social Security beneficiaries.  Of those, 45.2 million (73%) were retired workers and family members, 10.5 million (17%) were disabled workers and family members, and 6.0 million (10%) were survivors of deceased workers as of August 2017.

The report includes information regarding: 1) the origins and a brief history of the program; 2) Social Security financing and the status of the trust funds; 3) how Social Security benefits are computed; 4) types of Social Security benefits available to workers and their family members; 5) basic eligibility requirements for each type of benefit; 6) scheduled increase in the Social Security retirement age; and 7) the federal income taxation of Social Security benefits.

The report is available here.