Category Archives: Benefits

Latinos’ Retirement Insecurity in the United States

Source: Jennifer Erin Brown, National Institute on Retirement Security, December 2018

From the summary:
This report finds that inequalities in access and eligibility to employer-sponsored retirement plans are contributing to persistent retirement savings gaps for Latinos. As a result, Latinos are falling even further behind in preparing for retirement. Only 31 percent of all working age Latinos participate in workplace retirement plans, resulting in a median retirement account balance equal to $0.
The research finds that:
– Access and eligibility to an employer-sponsored retirement remains the largest hurdle to Latino retirement security.
– The retirement plan participation rate for Latino workers (30.9%) is about 22 percentage points lower than participation rate of White workers (53%).
– When a Latino has access and is eligible to participate in a plan, they show slightly higher take-up rates when compared to others races and ethnicities.
– For working Latinos who are saving, their average savings in a retirement account is less than one-third of the average retirement savings of White workers. Overall, less than one percent of Latinos have retirement accounts equal to or greater than their annual income.

Stability in Overall Pension Plan Funding Masks a Growing Divide

Source: Jean-Pierre Aubry, Caroline V. Crawford and Kevin Wandrei, Center for Retirement Research at Boston College, SLP#62, October 2018

The brief’s key findings are:
– Under traditional accounting rules, the aggregate funded ratio for state and local pension plans in 2017 was 72 percent, largely unchanged from recent years.
– This overall stability, however, masks a growing gap among plans: the average funded ratio was 90 percent for the top third but just 55 percent for the bottom third.
– The plans in the bottom third are in worse shape because, on average, they receive lower long-term investment returns and pay less of their required contributions.
– In addition, all plans face the possibility of a market downturn, which could set back funding for several years.

How Much Income Do Retirees Actually Have?

Source: Anqi Chen, Alicia H. Munnell and Geoffrey T. Sanzenbacher, Center for Retirement Research at Boston College, IB#18-20, November 2018

The brief’s key findings are:
– Recent research has re-documented that the Census Bureau’s Current Population Survey (CPS) understates retirement income.
– Some have wondered if this problem also applies to other surveys and calls into question decades of research that suggest many are ill-prepared for retirement.
– To answer this question, the analysis compared estimates from five commonly used national surveys to administrative data from the IRS and Social Security.
– This comparison shows that:
– the CPS continues to substantially understate retirement income, but
– the other four surveys – the SCF, HRS, SIPP, and PSID – track closely with administrative data, and
– estimates of retirement preparedness using a reliable survey find that roughly half of older households may fall short in retirement.

Related:
Working Paper

Prefunding Public Sector Retiree Health Benefits: The California Example

Source: John G. Kilgour, Compensation & Benefits Review, OnlineFirst, First Published November 1, 2018

From the abstract:
Most state and local governments have historically funded their retiree health care benefits on a pay-as-you-go basis. This has resulted in massive amounts of unfunded liability in many states including the five largest states of California, Florida, Illinois, New York and Texas. Recent accounting and reporting rules changes by the Governmental Accounting Standards Board has made these liabilities more visible and has resulted in more attention being paid to this problem. California has adopted a plan to pay off its huge unfunded retiree health benefit liability by 2044. It might serve as an example for other states with similar problems.

Thanks To A Strong Economy, California’s School Districts Can Face Continued Pension Increases–Though Will This Last?

Source: S&P Global Ratings, November 8, 2018
(subscription required)

Key Takeaways

– School revenue increases, driven by a strong state economy, have far outpaced nominal growth in required pension contributions.
– Although the share of district expenditures for pension contributions has increased, and will likely continue to grow, increases to median carrying charges have been sustainable.
– Most districts are more than two-thirds through the scheduled rise in pension contributions, and we expect growth in contribution rates will slow and stabilize over the next several years.
– Districts have not made significant pension-driven cuts to their operations to date, but may reduce salary increases and headcount through attrition moving forward.
– If the state experiences a recession, volatility in state funding could be a more likely source of adverse credit pressure for some districts.

Health Benefits In 2018: Modest Growth In Premiums, Higher Worker Contributions At Firms With More Low-Wage Workers

Source: Gary Claxton, Matthew Rae, Michelle Long, Anthony Damico, and Heidi Whitmore, Health Affairs, Vol. 37 no. 11, November 2018
(subscription required)

From the abstract:
The annual Henry J. Kaiser Family Foundation Employer Health Benefits Survey found that in 2018 the average annual premium for single coverage rose 3 percent to $6,896 and the average annual premium for family coverage rose 5 percent to $19,616. Covered workers contributed 18 percent of the cost for single coverage and 29 percent of the cost for family coverage, on average, with considerable variation across firms. Eighty-five percent of covered workers face a general annual deductible before they use most services, including the 29 percent of covered workers who are enrolled in a high-deductible health plan with a savings option. The share of firms covering services provided via telemedicine has increased steadily over the past several years. Nearly a quarter of large employers expect the elimination of the individual mandate to result in lower take-up in plan offerings.

Access to Employer-Sponsored Health Coverage for Same-Sex Spouses: 2018 Update

Source: Lindsey Dawson, Jennifer Kates, and Matthew Rae, Kaiser Family Foundation, October 29, 2018

Using the latest data from our annual Employer Health Benefits Survey (EHBS), we assessed access to employer sponsored health insurance (ESI) coverage for same sex spouses in 2018, as well as trends over time; ESI remains the primary way people in the U.S. receive health coverage, either directly or as a spouse or other dependent.1 We found that while access to same sex-spousal coverage through ESI is increasing, it remains significantly less common than the offer of opposite sex spousal coverage. In 2018, nearly two-thirds (63%) of employers offering health insurance to opposite sex spouses also offered coverage to same sex spouses and the share of employees with such access has increased over time so most (88%) now have access. These increases follow two Supreme Court rulings (United States v Windsor and Obergerfell v Hodges) which changed the legal landscape for same-sex couples, ultimately guaranteeing the right to marriage nationwide and paving the way for wider access to health insurance through the workplace.2 Still, neither court decision requires private employers to offer this benefit and tracking access through ESI remains important.

Health Care Spending Under Employer-Sponsored Insurance: A 10-Year Retrospective

Source: Amanda Frost, Eric Barrette, Kevin Kennedy, and Niall Brennan, Health Affairs, Vol. 37 No. 10, 2018
(subscription required)

From the abstract:
Using a national sample of health care claims data from the Health Care Cost Institute, we found that total spending per capita (not including premiums) on health services for enrollees in employer-sponsored insurance plans increased by 44 percent from 2007 through 2016 (average annual growth of 4.1 percent). Spending increased across all major categories of health services, although the increases were not uniform across years or categories. Growth rates for total per capita spending generally slowed after 2009 but increased between 2014 and 2016. Spending on outpatient services grew more quickly (average annual growth of 5.7 percent) compared to spending on the other types of services. However, the overall distribution of spending across categories remained largely unchanged. In the context of the dramatic economic and policy events that have taken place since 2007—including the Great Recession, the Affordable Care Act, and numerous medical innovations—this assessment of ten-year spending trends provides insights into how the largest insured population in the US contributes to health care spending growth.

State Public Pension Funds’ Investment Practices and Performance: 2016 Data Update

Source: Pew Charitable Trusts, Issue Brief, September 26, 2018

Substantial investment in complex and risky assets exposes funds to market volatility and high fees.

From the overview:
State and local public retirement systems held $3.8 trillion in assets in 2016, the most recent year for which comprehensive data are available. With the retirement security of 19 million current and former state and local employees at stake, sound and transparent investment strategies are essential.

In a bid to boost investment returns and diversify portfolios, plans in recent decades have shifted away from low-risk, fixed-income vehicles in favor of stocks and alternatives such as private equity, hedge funds, real estate, and commodities. In 2016, half of plan assets were invested in equities, a quarter in alternative investments, and another quarter in bonds and cash.

Investment performance over the last five to six years has, for the most part, tracked plan target rates, with average returns of about 7 percent. However, during the same time frame the fiscal position of public funds has not improved, and in most cases has declined. And while equities and alternatives can provide higher financial returns, they also leave funds vulnerable to market volatility and the risk of shortfalls. Furthermore, as our population ages and the number of retirees grows, cash outflows increase, adding more pressure to pension fund balance sheets.

Because earnings on these investments are expected to pay for about 50 to 60 percent of promised retirement benefits for public workers and retirees, careful attention to reporting and transparency has become increasingly important. In particular, understanding the impact of market volatility on public plans and their sponsoring governments’ budgets is critical for policymakers and stakeholders. Mandatory stress test reporting and full disclosure of asset allocation, performance, and fee details are therefore essential to determining whether public pension plans have the ability to pay promised retirement benefits…..