CRR Releases Report on Early Retirement

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CRR Releases Report on Early Retirement

On February 12, 2019, the Center for Retirement Research at Boston College (CRR) released its report, Retiring Earlier Than Planned: What Matters Most? According to CRR, over 33% of older workers retire earlier than planned. The report examines: 1) the impact of unexpected changes in health, employment, family and finances on early retirement; and 2) the frequency of these occurrences, or “shocks.”

The findings suggest:

  • Health shocks are the main reason for early retirement since they are most common.
  • Although not as prevalent, employment shocks such as a job loss without finding a new job is also a key reason for early retirement.
  • Familial shocks or family transitions have a slight impact on retiring early.
  • Financial shocks seem to have little effect on early retirement.

Importantly, all the shocks combined explain only about 25% of earlier-than-planned retirements. Therefore, the analysis suggests that further research is required to help determine the factors driving early retirement.

The report is available here.

Commonwealth Fund Finds More Americans Are Underinsured in Employer Health Plans-February 2019 Survey Brief

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Commonwealth Fund Finds More Americans Are Underinsured in Employer Health Plans-February 2019 Survey Brief

On February 7, 2019, the Commonwealth Fund released its survey brief, Health Insurance Coverage Eight Years After the ACA: Fewer Uninsured Americans and Shorter Coverage Gaps, But More Underinsured. The report is based on findings from the Commonwealth Fund Biennial Health Insurance Survey, 2018.  According to the survey, the Affordable Care Act (ACA) has expanded and helped to improve coverage options for individuals without access to job-based health plans. However, 45% of U.S. working-age adults between the ages of 19 to 64 are underinsured.

Key findings include:

  • In 2018, about 158 million Americans under age 65 get their health insurance through an employer;
  • About 25% of those under age 65 are enrolled in the ACA’s marketplace health plans or Medicaid;
  • Fewer adults are insured as compared with 2010 and the duration of coverage gaps has significantly shortened; and
  • About 12.4% of adults are uninsured, statistically unchanged from 2016.

The brief indicates that federal and state governments have the ability to extend the ACA’s coverage gains and help to improve the cost protection of both individual-market and employer plans through various policy options.

The report is available here.

CRS Updates Report on Social Security Benefits for Spouses and Survivors

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CRS Updates Report on Social Security Benefits for Spouses and Survivors

On February 6, 2019, the Congressional Research Service (CRS) released its updated report, Social Security: Revisiting Benefits for Spouses and Survivors. The report provides an overview of: 1) the current-law structure of the adequacy and equity of the auxiliary benefits for spouses, surviving spouses, and divorced spouses; and 2) the issues concerning the current-law structure of auxiliary benefits.

The report also discusses some recent proposals to modify Social Security’s current structure of spousal and survivors benefits. These proposals have different potential consequences regarding: 1) benefit levels of current, surviving, and divorced spouses; 2) redistribution of benefits among couples from different socioeconomic levels; 3) eligibility of means-tested programs such as Supplemental Security Income; and 4) work incentives.

The report is available here.

SLGE Releases Report on Financial Literacy Programs for Local Government Employees

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SLGE Releases Report on Financial Literacy Programs for Local Government Employees

On February 4, 2019, the Center for State & Local Government Excellence (SLGE) released its report, Financial Literacy Programs for Local Government Employees. SLGE conducted an in-depth analysis of local government financial literacy programs. The findings indicated that about 25% of local government employers in the U.S. offer such programs to their workforce and 13% reported that their jurisdiction is currently planning a program. Of those offering financial literacy programs, more than 75% include planning for retirement and budgeting and planning, and more than 50% cover debt and investments.

The report provides: 1) background information on the local government workforce; 2) review of literature on financial literacy; 3) data from a survey of U.S. local governments’ elected officials and human resources directors; 4) insights from discussions with city managers and budget officers; and 5) recommendations for practitioners, focusing on program topic and mode, to develop programs for diverse groups and being able to assess the results.

Some of the benefits of offering a financial literacy program include: increased contributions to supplemental savings plans (51%); increased employee engagement related to compensation issues (43%); and increased employee satisfaction (41%).

The report is available here.

NASRA Updates Issue Brief on Public Pension Plan Investment Return Assumptions

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NASRA Updates Issue Brief on Public Pension Plan Investment Return Assumptions

n February 2019, 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, on average over the past 25 years, public pension funds have exceeded their assumed rates of investment return.  The brief finds that for the 25-year period ending December 31, 2018, the median actual annual public pension fund investment return was 7.4% and for the 30-year period was 8.3%.

In addition, the brief finds that recent changes in economic and financial conditions have caused many public plans to reexamine their investment return assumptions.  Since FY 2010, more than 90% of the 129 plans included in the Public Fund Survey have lowered their return assumptions.  While the dominate investment return assumption ranges from 7.0% to 7.5% for the 129 plans, the average (median) assumption is 7.27%.  The brief also provides a table showing the investment return assumptions that are in use, or announced for use, by the 129 plans included in the Public Fund Survey as of February 2019.

In addition to presenting data related to public pension plans’ investment experience, the brief discusses how the investment return assumption is established and evaluated.  It then 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 1988, public pension funds have accrued an estimated $7.5 trillion in revenue.  Of that amount, investment earnings account for $4.7 trillion (62%), employer contributions account for $2.0 trillion (26%), and employee contributions account for $900 billion (12%).

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 8% to 7.75% 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 is available here.

NCPERS Releases 2018 Public Retirement Systems Study

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NCPERS Releases 2018 Public Retirement Systems Study

On January 30, 2019, the National Conference of Public Employee Retirement Systems (NCPERS) announced the results of its 2018 NCPERS Public Retirement Systems Study.  The comprehensive survey provides information on investment experience, actuarial assumptions, plan administration and operations, trends, innovations and best practices.

The key findings include:

  • During 2018, the average funding levels (the value of the assets in the pension plan divided by an actuarial measure of the pension obligation) increased slightly.  Average funding levels rose to 72.6% in 2018 from 71.4 in 2017.  Pension plans that responded in both 2017 and 2018 have an average funding level of 72.2%.
  • In 2018, the average investment return assumption was 7.34% compared to 7.49% in 2017.  About 83% of responding funds reported that they have reduced their actuarial assumed rate of return or are considering doing so in the future.
  • Amortization periods have shortened from 23.8 years to 22.4 years, and those with closed/fixed amortization have increased from 62% to 73%.
  • Employer contribution rates remained stable at 22% of payroll in 2018.
  • The funds experienced solid returns, close to or exceeding the assumed rate of return.  On average, 20-year returns were 7.2%, 5-year returns were 9.0%, and 1-year returns were 13.4%, significantly higher than 7.8% reported in 2017.
  • Pension funds reduced the cost of administering funds and paying investment managers to 60 basis points (or 60 cents per $100 invested) versus 55 basis points in 2017.  This is near the average fee of 59 basis points for equity funds and 70 basis points average for hybrid funds. As a result, public funds with lower expenses provide a higher benefit level to members for each dollar invested and produce a higher economic impact for the communities where those members reside.
  • In 2018, about 46% of plan sponsors offer a health plan or subsidy as compared with about 40% who offered a plan in 2017. Of those offering a plan, about 63% of active members are eligible, 98% of retirees are eligible, and 78% of beneficiaries are eligible.

The survey included 167 state and local government pension funds with more than 18.7 million active and retired members and total assets exceeding $2.5 trillion in actuarial assets and $2.6 trillion in market assets.  Of the pension funds surveyed, 62% were local government funds and 38% were state pension funds.

The report is available here.

Society of Actuaries Publishes Report on Pub-2010 Public Retirement Plans Mortality Tables

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Society of Actuaries Publishes Report on Pub-2010 Public Retirement Plans Mortality Tables

On January 22, 2019, the Society of Actuaries (SOA) published its report, Pub-2010 Public Retirement Plans Mortality Tables.  This report was published in conjunction with the new set of mortality tables for U.S. public pension plans released in late August 2018, the Pub-2010 Mortality Tables. The new tables include the individual mortality experience for teachers, public safety professionals and general employees. This is the first time the SOA has studied public retirement plan mortality separately from the private sector.

The Pub-2010 Public Retirement Plans Mortality Tables include 46 million life-years of exposure data and 580,000 deaths from 78 public pension plans and 35 public pension systems in the U.S. The analysis indicates that teachers have the longest age-65 life expectancy of the job categories studied. In addition, the report suggests that higher income is correlated with lower mortality, since income was the most statistically significant mortality factor across all job categories.

According to the SOA, the financial impact of implementing the new mortality tables will vary based on each individual job category as well as members’ ages and other demographics in each pension plan. The SOA cautions that plan sponsors should work with their plan actuaries to understand the impact of the tables on their pension plan to determine how to incorporate emerging mortality and mortality improvement into their plan’s actuarial valuations.

In August 2018, the Society of Actuaries’ Retirement Plans Experience Committee (RPEC) released an exposure draft report of the Pub-2010 Public Retirement Plans Mortality Tables and comments were due by October 31, 2018.

David Kausch, Chief Actuary for GRS, served as the chair of the Public Plans Subcommittee which developed these tables.

Additional information is available here.

NASRA Updates Issue Brief on State Hybrid Retirement Plans

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NASRA Updates Issue Brief on State Hybrid Retirement Plans

On January 30, 2019, the National Association of State Retirement Administrators (NASRA) released its issue brief, State Hybrid Retirement Plans, which updates an earlier version published in December 2017.  The brief provides new information on statewide cash balance and combination hybrid plans as well as 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.

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.

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 2018, 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.

GAO Releases Report on Health Insurance Exchanges

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GAO Releases Report on Health Insurance Exchanges

On January 28, 2019, the U.S. Government Accountability Office (GAO) released its report, Health Insurance Exchanges: Claims Costs and Federal and State Policies Drove Issuer Participation, Premiums, and Plan Design. GAO examined health insurance exchange activities including: 1) claims costs of issuers participating in exchanges; and 2) factors driving selected issuers’ changes in exchange participation, premiums, and plan design. GAO studied data from nine issuers participating in five states, which represented a varied range in size, tax status, and exchange participation. The five states (California, Florida, Massachusetts, Minnesota, and Mississippi) were selected to provide diversity in geography and whether they had a federally facilitated or state-based exchange.

The report highlights include:

  • From 2014 to 2016, claims costs were higher than expected in earlier years;
  • From 2017 to 2017, claims costs typically increased, but selected insurers experienced volatility in costs mainly due to large variations in the number and health of enrollees from year-to-year; and
  • Average monthly claims costs changed significantly among issuers in the same state.

In addition, selected issuers cited various factors that affect changes related to participation, premiums and plan design, including: claims costs; federal funding changes; and state requirements and funding. In the near future, selected issuers recognized that changes in federal and state policies will continue to affect decisions specifically related to premium changes.

The report is available here.

NIRS Updates Pensionomics Report on the Economic Impact of DB Pension Expenditures

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NIRS Updates Pensionomics Report on the Economic Impact of DB Pension Expenditures

On January 10, 2019, the National Institute on Retirement Security released its updated report, Pensionomics 2018: Measuring the Economic Impact of Defined Benefit Pension Expenditures. The biennial study finds that public and private pension benefits offer significant support for the U.S. economy.

According to the study, each dollar of benefit paid to retirees supported $2.13 of the total U.S. economic output.  In addition, these pension benefits help to support the economy and as well as jobs where retirees reside since those with monthly pension income continue spending on basic needs even during economic downturns.

During the fiscal year ending in 2016, the study reports:

  • Public and private pension plans provided about $578.0 billion in benefits to about 26.9 million retirees and beneficiaries.  Of this amount, $294.7 billion was paid to 10.7 million state and local government retirees and beneficiaries; $83.0 billion was paid to 2.7 million federal government beneficiaries; and $200.3 billion was paid to 13.5 million private sector beneficiaries;
  • These benefits supported more than $1.2 trillion in the total U.S. economic output and provided an estimated $685.0 billion in value added to the national economy; and
  • This, in turn, supported approximately 7.5 million American jobs paying more than $386.7 billion in total compensation, as well as $202.6 billion in annual federal, state, and local tax revenues.  The largest employment impacts were in retail trade, health care, real estate, and food service industries.

The study also finds that over the period from 1993 to 2016, government (i.e., taxpayer) contributions to public pension plans averaged 25.1% of the total annual plan receipts, with the remainder coming from investment earnings (63.3%) and employee contributions (11.6%).  As a result, the study estimates that every dollar contributed by taxpayers to public pension funds supports an estimated $8.48 in total economic output.

According to the report, “reliable pension income can be especially important not only in providing retirees with peace of mind, but in stabilizing local economies during economic downturns. Retirees with DB pensions know they are receiving a steady check despite economic conditions. In contrast, retirees may be reluctant to spend out of their 401(k)-type accounts if their savings are negatively impacted by market downturns.”

The analysis was conducted using data from the U.S. Census Bureau and input-output modeling software (IMPLAN) to assess the economic impact.  In addition to providing national estimates of economic activity, the report also estimates the economic impact of public pensions in all 50 states and provides fact sheets for each state. 

The report is available here.

A map with downloadable fact sheets for each state is available here.