…Of course Kentucky isn’t the only state that’s patching over its retirement health payment holes with Silly Putty (although it is the only one Kim knows of that is paying off those bills today by issuing more debt for tomorrow). Most states and municipalities today are grappling with the growing cost of retiree health care, a problem highlighted now on balance sheets thanks to relatively new accounting rules that require governments to report their OPEB unfunded liabilities.
As of the end of fiscal 2012, many states’ OPEB unfunded liabilities are in the billions: California’s is more than $80 billion between its state, trial court and university system retirees; Illinois’ State Employees Group Insurance plan reports more than $33 billion in unfunded liabilities; and Maine’s three predominant plans combine for nearly $24 billion in unfunded liabilities (not including life insurance costs)….
Employee compensation packages commonly include both wages and benefits. For decades, employee benefits have been used as part of the total compensation package to attract and retain highly qualified workers. Just as workers in various occupations receive different levels of pay, they also receive access to different types and combinations of employee benefits. This article uses March 2012 National Compensation Survey (NCS) data to examine private industry workers’ access to medical benefits, retirement benefits, and combinations of the two benefits, by major occupation group, wage category, part-time and full-time status, union and nonunion status, and establishment size. The study finds notable differences in the patterns of access to medical and retirement benefits—separately, and in combination—among the various worker groups….
…A worker’s bargaining status plays a role in access to benefits as well. Union workers generally have higher rates of access to benefits than their nonunion counterparts. Not only are employer costs for wages and salaries roughly $3 more per employee hour worked, on average, in the private sector ($23.17 per hour worked compared with $19.96 per hour worked), they also are more likely to have access to medical and retirement benefits, both separately and in combination.
Chart 4 shows the percent of workers with various benefit combinations by bargaining status. Union workers are more likely than nonunion workers to have access to both benefits. Twenty five percent of nonunion workers have no medical and no retirement, compared with only 4 percent of union workers. A study by the Employee Benefit Research Institute showed that the premiums paid for benefits “are higher in plans with union workers compared with plans that have no union workers,” and union workers “paid a smaller share of the premium through payroll deduction for family coverage in plans with at least some union workers (20 percent) as compared with plans with no union workers (31 percent).” Although union workers make up a relatively small proportion of workers in the private sector—about 7.2 percent in 2011, according to data from the Current Population Survey—through collective bargaining they generally are able to negotiate higher wages and benefits for the workers they represent….
From the press release:
For most Americans, traditional retirement is now a pipe dream: Six in 10 people believe they’ll have to delay retirement, just 14 percent are very confident they’ll be able to live comfortably once they stop working, and 17 percent believe they’ll never retire at all.
Who is to blame?
The Retirement Gamble …is an eye-opening investigation of a financial services industry that may be draining your retirement savings with every passing year….
FRONTLINE’s investigation reveals:
– On any given street, one household may be paying 10 times as much to invest in a 401(k) as the household next door;
– Over the course of a lifetime, a seemingly low annual fee of 2 percent can reduce what your balance would have been by more than 60 percent—potentially adding years to your working life;
– Popular 401(k) providers often charge a plethora of hidden fees, burying them under opaque names like “Expense Ratio”;
– Many financial advisers are not required to provide advice that is in their clients’ best interest; they are only obligated to give advice that is “suitable”; and
– The best way to maximize your return might be to cut Wall Street out of the equation and invest in low-cost, unmanaged index funds….
From the abstract:
This research adds to an existing body of research that suggests that the adoption of investment return assumptions associated with public sector defined benefit (DB) pension plans may partly be explained by political opportunism. This research adds to this literature by examining how oversight and monitoring efforts and investment boards’ relative independence from the political process influence adopted investment return assumptions. Based on a multivariate regression analysis of data on 88 state DB pension plans in the United States, the results of this study suggest that adopted investment return assumptions are partly determined by investment boards’ affiliation with the political process. The results also indicate that the adopted assumptions are influenced by asset allocations and the fiscal condition of pension plans. The findings of the study are important in part because they draw attention to possible linkages between the quality of financial information that is reported about the financial condition of public pension funds and their surrounding governance structure. Reliable information about the actual size of unfunded pension liabilities is critical in political environments, where there tend to be a bias toward shifting pension obligations to future constituents.
From the abstract:
A compelling, but unsubstantiated, argument for paid sick leave legislation is that workers with leave are better able to address own and family member health needs without risking a voluntary or involuntary job separation. This study tests that claim using the Medical Expenditure Panel Survey and regression models controlling for a large set of worker and job characteristics, as well as with propensity score techniques. Results suggest that paid sick leave decreases the probability of job separation by at least 2.5 percentage points, or 25%. The association is strongest for workers without paid vacation leave and for mothers.
From the Robert Wood Johnson Foundation summary:
Recent analysis of ESI coverage provides a baseline to facilitate monitoring Affordable Care Act expansions of public and private coverage in 2014.
This study from the Robert Wood Johnson Foundation-funded State Health Access Data Assistance Center (SHADAC) found that health insurance coverage from employer-sponsored insurance (ESI) “eroded substantially” from 1999/2000 to 2010/2011 (study period).
– The percentage of nonelderly people with ESI declined 10.2 percentage points (PPs) from 69.7 percent to 59.5 percent over the study period while pubic coverage increased 3.1 PPs.
– While most states saw “significant declines” in ESI coverage, the range was wide—from New Hampshire (73.8% coverage) to New Mexico (48.0% coverage).
– ESI coverage varied by income. It fell less (2.8 PPs) for high-income groups (400% federal poverty level [FLP] or above) than for those with lower incomes (200 FPL or below) where the fall was 10.1 PPs.
– Nationally, the percentage of private-sector firms offering ESI fell from 58.9 percent to 52.4 percent (although the percentage of workers eligible for coverage at firms that offered ESI held steady). The take-up rate also fell from 81.8 percent to 76.3 percent. Small firms offering coverage declined (67.7% to 56.3%) while at large firms it remained essentially unchanged.
– Single-person premium costs doubled ($2,490 to $5,081); family premiums rose 125 percent ($6,415 to $14,447); employee contributions increased (17.5% to 20.8% of the total premium).
Americans do not save enough for retirement. One reason is that our retirement savings accounts—whether employer-sponsored defined-contribution plans such as 401(k) plans or individual retirement accounts—are heavily invested in actively managed mutual funds that siphon off tens of billions of dollars in fees every year, yet deliver returns that trail the overall market. Under existing law, as interpreted by the courts, mutual funds may charge high fees to investors, and companies may offer expensive, active funds to their employees. This Article argues that the Employee Retirement Income Security Act should be reinterpreted, in light of basic principles of trust investment law and the underlying purpose of the statute, to strongly encourage employers to offer low-cost index funds in their pension plans. Existing Department of Labor regulations should be modified to clarify that the current safe harbor for participant-directed plans (in which participants select among investment options chosen by plan administrators) does not extend to plans that include expensive, actively managed funds. This would improve the investment options available to American workers and increase their chances of generating sufficient income in retirement.
From the abstract:
Legal and financial analyses abound about various means of saving for retirement and the tax advantages that they present, but very little attention has been paid to how retirement income is generated and the tax consequences that pertain to its generation. This article fills that void by examining the three major sources of retirement income: Social Security, employment-based retirement plans, and personal savings. For each of these sources, this article considers how retirement income is generated, sets forth the applicable federal income tax treatment, and proposes reforms to make the pertinent tax rules more sensible. Among its recommendations are simplifying how Social Security retirement benefits are taxed, bifurcating defined contribution plan withdrawals into capital gains and ordinary income components, repealing certain exceptions to the early distribution penalty, reducing the delayed distribution penalty and adjusting the age at which it is triggered, and changing the residential gain exclusion to avoid unanticipated problems with reverse mortgages.
From the summary:
One of the key mechanisms for expanding health insurance coverage under the Affordable Care Act is the creation of new insurance exchanges—marketplaces where people can compare and purchase qualified private health plans based on benefits, quality, and price. Although one goal is to stimulate competition among private health plans, in most states the insurance markets for individuals and small businesses are highly concentrated. For example, in 30 states a single insurance company accounts for more than half the enrollees in the individual market, and in most states one or two insurers dominate the small-group market.
To spur competition among plans, the Affordable Care Act also created the Multi-State Plan Program. The Office of Personnel Management (OPM), which administers health insurance programs for federal employees and members of Congress, will certify and oversee health insurance issuers to offer at least two plans in every state exchange.
This policy brief explores the background of the Multi-State Plan Program, the challenges facing OPM in administering it, and the issues associated with offering health insurance plans in multiple states.
The national debate over health reform in recent years has brought with it many stories of individuals without sufficient health care coverage for a variety of reasons, including employers not offering coverage, individuals (including those offered a health plan by their employer) unable to afford coverage, and plans that limit coverage of preexisting conditions or cap coverage affecting certain catastrophic conditions. As provisions of the Patient Protection and Affordable Care Act are implemented over the next several years, these circumstances may change. Among employment-based health care benefits, one area where disparity in coverage and plan features currently exists is between smaller and larger establishments. Data from the Bureau of Labor Statistics (BLS) highlight these differences.