Category Archives: Benefits

Views on the Value of Voluntary Workplace Benefits: Findings from the 2014 Health and Voluntary Workplace Benefits Survey

Source: Paul Fronstin, Ruth Helman, Employee Benefit Research Institute (EBRI), EBRI Notes, Vol. 35 No. 11, November 2014

From the abstract:
The Employee Benefit Research Institute (EBRI) has been conducting “value of benefits” surveys for 20 years to determine the relative importance of different benefits to workers and to assess the role played by benefits in job choice and job change over time. The surveys show consistency in the value of some benefits and substantial change on others. This paper examines public opinion surrounding voluntary workplace benefits. Data come from the 2014 EBRI/Greenwald & Associates Health and Voluntary Workplace Benefits Survey (WBS). Among other topics, the survey examines a broad spectrum of workplace benefits issues, with a particular focus on voluntary workplace benefits. Workers continue to rank health insurance as the first- or second-most important benefit provided by employers. Between 1999 and 2014, the percentage of workers ranking health insurance as the first- or second-most important benefit varied between 74 percent and 82 percent. While the ranking of a retirement savings plan fell from 2001 to 2014, this may be due to the introduction of additional benefits in the survey, such as paid time off. Three-quarters of workers state that the benefits package an employer offers prospective workers is extremely (32 percent) or very (44 percent) important in their decision to accept or reject a job. Nevertheless, 34 percent are only somewhat satisfied with the benefits offered by their current employer, and 22 percent are not satisfied. Eighty-six percent of workers report that employment-based health insurance is extremely or very important, far more than for any other workplace benefit. Workers identify lower cost (compared with purchasing benefits on their own) and choice as strong advantages of voluntary benefits. However, they are split with respect to their comfort in having their employer choose their benefits provider, and think the possibility that they may have to pay the full cost of any voluntary benefits is a strong or moderate disadvantage.

The PDF for the above title, published in the November 2014 issue of EBRI Notes, also contains the fulltext of another November 2014 EBRI Notes article abstracted on SSRN: “The Gap Between Expected and Actual Retirement: Evidence From Longitudinal Data.”

New Evidence on the Risk of Requiring Long-Term Care

Source: Leora Friedberg, Wenliang Hou, Wei Sun, Anthony Webb and Zhenyu Li, Center for Retirement Research at Boston College, WP#2014-12, November 2014

From the abstract:
Long-term care is one of the major expenses faced by many older Americans. Yet, we have only limited information about the risk of needing long-term care and the expected duration of care. The expectations of needing to receive home health care, live in an assisted living facility or live in a nursing home are essential inputs into models of optimal post-retirement saving and long-term care insurance purchase. Previous research has used the Robinson (1996) transition matrix, based on National Long Term Care Survey (NLTCS) data for 1982-89. The Robinson model predicts that men and women aged 65 have a 27 and 44 percent chance, respectively, of ever needing nursing home care. Recent evidence suggests that those earlier estimates may be extremely misleading in important dimensions. Using Health and Retirement Study (HRS) data from 1992-2010, Hurd, Michaud, and Rohwedder (2013) estimate that men and women aged 50 have a 50 and 65 percent chance, respectively, of ever needing care. But, they also estimate shorter average durations of care, resulting, as we show, from a greater chance of returning to the community, conditional on admission. If nursing home care is a high-probability but relatively low-cost occurrence, models that treat it as a lower-probability, high-cost occurrence may overstate the value of insurance.

We update and modify the Robinson model using more recent data from both the NLTCS and the HRS. We show that the low lifetime utilization rates and high conditional mean durations of stay in the Robinson model are artifacts of specific features of the statistical model that was fitted to the data. We also show that impairment and most use of care by age has declined and that the 2004 NLTCS and the 1996-2010 HRS yield similar cross-sectional patterns of care use. We revise and update the care transition model, and we show that use of the new transition matrix substantially reduces simulated values of willingness-to-pay in an optimal long-term care insurance model.
Related Issue in Brief:
“Long-Term Care: How Big a Risk?”

What’s Next for VEBAs? The Impact of Declining Employer-Provided Health Care Coverage and the Affordable Care Act

Source: Erin Leighty, Pension Research Council, Working Paper, WP2014-19, July 2014

From the abstract:
A voluntary employee beneficiary association or VEBA, is a U.S. tax-exempt organization set up to pay for employee health and welfare benefits. The 2007 establishment of a stand-alone VEBA trust funded by the Big Three US automakers and managed by the UAW seemed to mark a defining moment for employer-provided retiree health care benefits. After years of declining employer-provided medical benefits, the VEBA trust seemed to offer an innovative structure to maintain these promises while moving the liability off of the employer’s balance sheet. Nevertheless, the 2008 financial crisis and government-assisted bailouts of GM and Chrysler immediately tested the stand-alone VEBA structure. Additionally, the passage of the Affordable Care Act is expected to accelerate the decline of employer-provided retiree health care benefits. With retirees able to receive medical coverage through the Affordable Care Act’s health care exchanges, the number of VEBA plans has already begun to decline. VEBAs will still serve a purpose as a tax-advantaged benefit funding mechanism and will be important for companies in financial distress looking to reduce the level and uncertainty of their significant benefit liabilities.

Teacher Retirement Plans: Case Studies in Washington and Ohio Indicate Value of Pensions

Source: Diane Oakley and Ilana Boivie, National Institute on Retirement Security, Issue Brief, December 2014

From the summary:
An issue brief finds that teachers prefer a stand-alone defined benefit pension when given a choice between a pension plan or a plan that combines a defined contribution account with a pension.

This new research brief examines the experience in the only two states that have offered a defined benefit (DB) and defined contribution (DC) combination choice – Washington and Ohio. The research offers three key findings:
1. The teacher retirement plan election pattern during 1997 in Washington is unique. The combined DB-DC plan offered by the state included special features and circumstances that enticed teachers to switch:
– Teachers were provided with an upfront financial payments in 1997 that encouraged the switch;
– Stock market conditions with double-digit gains in the 1980s and 1990s may have caused teachers to overestimate the future value of their DC accounts. Thus, the combined DB-DC plan appeared more attractive in 1997; and
– The state offered important features such as in-plan annuitization of a teacher’s DC account balance, so he or she would receive guaranteed lifetime income with the state reassuming the longevity risk. In fact, this ability provides teachers with a significantly larger lifetime income than available today from annuities from insurance companies.

2. Ohio had a far different outcome than Washington over the years when teachers could choose between the DB plan and the DB-DC combination plan. Between 2002-2014, 86% of new teachers opted to join the traditional DB plan and only four percent opted for the combined plan. The remaining 10% chose the DC plan, the third option available in Ohio.

3. Education policy research finds that DB pensions play a critical role in recruiting and retaining qualified, productive teachers. Thus, offering an alternative retirement plan design could have adverse effects on teacher retention and quality.
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The Long Reach of Education: Early Retirement

Source: Steven F. Venti, David A. Wise, National Bureau of Economic Research (NBER), NBER Working Paper No. w20740, December 2014
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From the abstract:
The goal of this paper is to draw attention to the long lasting effect of education on economic outcomes. We use the relationship between education and two routes to early retirement – the receipt of Social Security Disability Insurance (DI) and the early claiming of Social Security retirement benefits – to illustrate the long-lasting influence of education. We find that for both men and women with less than a high school degree the median DI participation rate is 6.6 times the participation rate for those with a college degree or more. Similarly, men and women with less than a high school education are over 25 percentage points more likely to claim Social Security benefits early than those with a college degree or more. We focus on four critical “pathways” through which education may indirectly influence early retirement – health, employment, earnings, and the accumulation of assets. We find that for women health is the dominant pathway through which education influences DI participation. For men, the health, earnings, and wealth pathways are of roughly equal magnitude. For both men and women the principal channel through which education influences early Social Security claiming decisions is the earnings pathway. We also consider the direct effect of education that does not operate through these pathways. The direct effect of education is much greater for early claiming of Social Security benefits than for DI participation, accounting for 72 percent of the effect of education for men and 67 percent for women. For women the direct effect of education on DI participation is not statistically significant, suggesting that the total effect may be through the four pathways.

NRRI Update Shows Half Still Falling Short

Source: Alicia H. Munnell, Wenliang Hou and Anthony Webb, Center for Retirement Research at Boston College (CRR), IB#14-20, December 2014

The brief’s key findings are:
Between 2010 and 2013, the National Retirement Risk Index improved only slightly, dropping from 53 percent to 52 percent of working-age households.
This result may seem surprising given that the stock market was up and housing prices had begun to rebound.
But other factors ­– Social Security’s rising “Full Retirement Age,” declining interest rates, and changes in reverse mortgage rules – acted as counterweights.
The bottom line is that retirement security remains a serious challenge; Americans need to save more and/or work longer.

Spotlight on Retiree Health Care Benefits for State and Local Employees in 2014

Source: Joshua Franzel and Alex Brown, National Association of State Retirement Administrators (NASRA) and the Center for State and Local Government Excellence (SLGE), December 2014

From the summary:
An overview of the health care and other postemployment benefits state and local governments provide for their retired employees and how they pay for them.

Key findings:
– For most employees who retire from state (or covered local) government service, this coverage continues into retirement.
– The style and size of coverage varies and state and local government retiree health programs do not have a uniform design.
– Different plan designs, coverage levels, and financing arrangements produce different costs for sponsoring state governments.
– States vary in how they approach financing retiree health benefits, with some prefunding future benefit obligations while others pay for the associated costs annually as part of the state operating budget.
– The value of assets states hold in trust varies significantly.

This brief updates finance data on health care and other postemployment benefits (or OPEB) provided to general state employees featured in the 2013 report. The update also expands data to include additional state and local government employee cohorts including teachers, public safety officers, university employees, and legislators, among others.

Building Bulwarks Against the Breakdown of Retirement Benefits for Public Sector Employees

Source: Amanda Cuda, HR News, Vol. 80 no. 11, November 2014
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….Recognizing that cutting subsidies and payments cannot stand as the only way to address pension problems without risking employees’ financial security, some public sector organizations are looking at innovative ways to lessen their spending….