1st Quarter 2008
The long-term transition from defined benefit (DB) to defined contribution (DC) occupational pensions has been the subject of academic and industry research. Even so, there remains considerable debate about the causes and consequences of this transformation. This article explores these contentious issues through a unique survey of over 1,260 U.S. experts in the field of pension financing and provision. The results suggest that apparent disagreements among experts over the current predicament and future of DB pensions in the private sector represent disagreement about the very nature of the pension promise. Those who hold to a strong version of the pension promise hold to, in fact, a quite specific relational model of modern capitalism.
Government policies toward defined benefit plans over the last 20 years often focused on short-term federal budget accounting rather than long-term retirement needs. In reviewing the history of U.S. pension policy, the authors argue that government policy focused on the retirement needs of workers and the concerns of defined benefit plan sponsors would have made a difference in the retirement benefits of today's middle-class workers. Although the decline in the defined benefit system was inevitable due to larger forces like globalization, those workers' defined benefit plans might not have been frozen or terminated in recent years.
Sponsors of 403(b) plans will have to become more active and hands-on in managing their 403(b) programs and providers for two reasons. First, the new 403(b) regulations published in July 2007 will impact plan sponsors' oversight of plan administration and legal compliance. Second, some of the “environmental” factors that have given rise to recent 401(k) trends apply to 403(b) sponsors and should be considered when assessing employers' relationship with their 403(b) program. In fact, for many sponsors, these trends will represent a shift in emphasis and resources far beyond the legal effort needed to comply with the new regulations.
The Governmental Accounting Standards Board Statement 45 (GASB 45) obliges public employers to disclose liabilities related to postretirement medical benefits. Most state and local government entities are beginning to analyze and quantify how GASB 45 liabilities will affect their balance sheets and credit ratings. This article describes the many ways to reduce those liabilities without eliminating retiree medical plan benefits altogether. Now is the time for employees and employers to work together and make difficult choices for keeping retiree medical costs and GASB 45 liabilities manageable.
Although consumer-driven health plans (CDHPs) have grown dramatically, the question of whether CDHPs have reduced health care costs has not been answered definitively. This article presents what the authors believe to be the first study to analyze a large sample of claims data and to look in detail at different types of utilization among enrollees in a CDHP and those in a traditional comprehensive major medical (CMM) plan. After adjusting for the finding that CDHP enrollees are both younger and healthier than those in CMM plans, the authors found that CDHP enrollees show no consistent or significant utilization differences for measures over which consumers have little control (e.g., inpatient stays); lower utilization for measures over which consumers have greater control (e.g., emergency room visits); and higher utilization of preventive services.
2nd Quarter 2008
Financially speaking, an effective, comprehensive, properly executed health and productivity (H&P) program can drive significant business results. Unfortunately, many companies are not getting the same return on their investments in H&P programs as their peers. This article defines program effectiveness and describes the specific activities of employers that have implemented successful H&P strategies leading to improved health, increased productivity and lower benefit costs—and, in turn, higher levels of performance, returns to shareholders and market premium.
Employers seeking to motivate and encourage healthy behaviors among their employees are increasingly turning to incentive rewards. In fact, a recent Buck Consultants survey of 555 employers, titled Working Well: A Global Survey of Health Promotion and Workplace Wellness Strategies, predicts the use of such rewards to more than double over the next two to three years. This article provides an overview of the key considerations for employers seeking to maximize the value of incentive rewards. Discussion includes incentive strategies, types of rewards, reward amounts and regulatory considerations under the Health Insurance Portability and Accountability Act (HIPAA) and the Americans with Disabilities Act (ADA).
Businesses should focus on a proactive solution to rising health care costs, using integrated wellness programs that emphasize condition management and total health and well-being. If corporations wish to remain competitive, profitable and successful in attracting and retaining topnotch talent from all generations, they are going to have to start investing in and thinking creatively about wellness offerings. Not only do wellness programs have a proven track record of success in reducing health care costs, they also resonate loud and clear with modern-day employees who are determined to work for a company that understands their needs and is willing to make progress with the employee's best interests in mind.
Annual employer-sponsored health plan cost increases have been slowing incrementally due to slowing health care utilization—a phenomenon very likely tied to the proliferation of health management activities, wellness programs and other consumerism strategies. This article describes the sharp rise in recent years of consumer-directed health plans (CDHPs) and explains what developments must happen for genuine consumer directed health care to realize its full potential. These developments include gathering transparent health care information, increasing consumer demand for that information and creating truly intuitive data solutions that allow consumers to easily access information in order to make better health care decisions.
The health cost crisis has spawned a thriving cost-control industry that offers an ever-growing number of “solutions.”The authors of this article encourage employers to go back to the basics in evaluating these offerings, including their wellness policies and programs. This article describes the many ways different employers do wellness, the evidence base for wellness, how employers should target wellness candidates, and the elements of success and failure for wellness initiatives.
The Value-Driven Health Care initiative and the Executive Order (EO) that underpins it invert the cost/quality equation and proceed from the premise that improving quality first—in terms of both care and system management—will reduce costs and elevate value. Equally essential to the success of the initiative is transparency: access to information that will empower consumers to save on quality care. This article describes the four cornerstones of the EO and explains how they will translate into corporate action and value.
3rd Quarter 2008
In LaRue v. DeWolff, Boberg & Associates Inc. et al., the U.S. Supreme Court recently opened the door for 401(k) plan participants to sue plan fiduciaries to recover losses to their individual accounts. The decision resolved a split in the circuit courts of appeals and held that the Employee Retirement Income Security Act of 1974 (ERISA) authorizes recovery for a fiduciary’s alleged mismanagement of a plan, even though the alleged fiduciary breach impacts only a subset of participants’ 401(k) accounts. This article analyzes the LaRue decision and concludes that it is not especially harmful to plan fiduciaries and sponsors. The authors suspect that the real impact will depend on how courts hereafter apply the varied reasoning in the majority opinion and in Chief Justice Roberts’ concurrence.
On January 28, 2008, President Bush signed into law the National Defense Authorization Act for Fiscal 2008 (Public Law 110-181), which includes provisions expanding the Family and Medical Leave Act (FMLA) to require employers to provide unpaid leaves of absence for certain reasons related to family members serving in the military. Under the new law, employees will be entitled to 12 weeks’ FMLA leave per year for certain yet-tobe-defined “qualifying exigencies” related to a family member’s active military duty. In addition, employees are entitled to take 26 weeks of leave during a single 12-month period to care for a covered family member who suffers a serious injury or illness while on active military duty.
Despite Nationwide’s considerable efforts, the active participation rate in its retirement plan remained mostly unchanged for many years, and the company knew its associates were not adequately preparing for retirement. Due to the passage of the Pension Protection Act of 2006, Nationwide implemented automatic enrollment and automatic increase features in the Nationwide Savings Plan (auto enroll/auto increase) in 2007.This article describes the company’s better-than-expected results for all its associates and offers advice and encouragement to other employers that may be considering adding auto enroll/auto increase features to their plans.
Many of our social and employee benefit policies were designed for an era when people had shorter life expectancy and employers had a large cohort of younger workers to replace those retiring. In light of new demographic trends, this article examines work options for older Americans, provides an overview of benefits policy issues for an aging workforce and lists topics for further benefits policy analysis.The author also identifies policy options to facilitate work at older ages in a number of areas, including changes to employer retirement plans, Social Security, Medicare and disability policy.
Since 2001, even some sound corporate sponsors have faced sudden and severe negative impacts on pension plan solvency due to poor equity market performance, record low interest rates and declining mortality trends. Following an overview of key accounting changes that have occurred internationally, this article reports on legislation and regulations developing in Canada to assist plan sponsors. The authors describe different instruments of financial guarantee that might be employed and identify several areas that require additional work to enhance those instruments’ robustness and transparency.
Policy makers continue to struggle to address changing demographics and aging populations amid much disagreement regarding the best path for pension reform.This article describes the social security reform efforts of several nations in the Americas, which, since Chile’s pension reform, have become a global laboratory for pension reform.
The authors review the many lessons of this new “postprivatization” era of pension policy, in which the euphoria of the initial phase of reform is clearly over and a decade or more of experience has proven pension reform to be an ongoing project.
As the population is living longer, periods of retirement have been lengthening. At the same time, more people are leaving the workforce gradually rather than in one step. By building on research and data from a variety of sources and combining this information with intuition, the author of this article explores the context for retirement in the future; sets forth alternative scenarios for retirement; and discusses the public policy, individual and family implications of these scenarios. In doing so, she considers the perspectives of the individual, the employer sponsoring retirement plans and society as a whole.
4th Quarter 2008
Before changing plan design to address the problem of rising prescription drug benefit cost, employers must understand and periodically revisit the pharmacy benefit building blocks. Ultimately, aligning all aspects of the pharmacy benefit is the best and only way to help control drug benefit costs and, at the same time, promote greater employee satisfaction. This article describes how the pharmacy benefit building blocks of delivery (dispensing), provider contracting, drug products and benefit design all have to work together to produce a more effective pharmacy benefit program.
First DataBank (FDB) is the prescription drug industry’s largest publisher of average wholesale price (AWP) data, which is used to derive drug prices at the consumer end of the U.S. drug distribution system. In 2006, FDB agreed to a tentative legal settlement after allegations it engaged in questionable activities that cost millions of consumers and third-party payers an extra $7 billion between August 2001 and March 2005. The potential impact of the proposed settlement is projected to be far-reaching; however, settlement details still require final approval by the court.
In the United States today, most citizens receive their health care through programs sponsored and financed by their employers rather than through primarily government-based funding. With this in mind, 85% of U.S. employer survey respondents indicated their health care programs are an investment in their employees from which they expect a return. With the many new pharmaceutical therapies that have been developed and marketed in this country that treat small populations suffering from rare or previously untreatable diseases such as multiple sclerosis, inflammatory diseases, and treatments for various types of cancer, employers have found themselves in an uncomfortable position. The costs of these pharmaceutical therapies can reach $5,000 per month or more, but the long-term benefits may take decades to assess; even increased survival rates or improvement of symptoms is uncertain in some newer oncology therapies. What steps can employers take to manage the availability of these high-cost therapies so their prescription drug plans continue to provide an acceptable return on investment? Prior authorization, step therapy, wellness programs, case management, drug compliance efforts, drug therapy rationing, transparency and cost-sharing techniques are discussed.
A growing number of companies are considering whether they can reduce overall medical costs by improving drug compliance through value-based pharmacy benefit designs. Value-based designs either provide more generous coverage for certain clinically proven drugs, or change cost-sharing or copayment levels for drugs used to treat the employee population’s most widespread and costly chronic medical problems. This article presents employer experiences, identifies important issues for those considering value-based pharmacy benefits and suggests ways to overcome barriers to implementation.
Although the rise in pharmacy benefit costs continues to outpace overall medical cost inflation, the gap is narrowing. Employers can improve cost and employee wellness even further with an innovative technique for drug therapy compliance called the Diagnosis-Prescription (Dx-Rx) approach. This article reports results from a 2007 national employer survey on pharmacy benefits and describes how the Dx-Rx innovation can keep patients and their doctors on track when it comes to controlling disease and driving down overall medical costs.
A health savings account (HSA) plan, when properly understood, can be a great tool for managing health care costs for employers. It also can be a great tool for employees who want to save for future medical costs. Unfortunately, most presentations and articles about HSA plans skip the details; and there are many administrative and compliance complexities, as would be expected with any plan that involves a tax break. This article provides ten points human resource (HR) and benefit professionals should know when considering whether to add an HSA plan. In this collective learning curve, the more accurately employers address questions, the happier their employees will be with their new plans.
Plan sponsors are managing defined benefit (DB) plans in new ways. In particular, the time horizon for sponsors of plans that have been closed and/ or frozen has become shorter. This article will describe a suggested approach to managing pension obligations in the new environment, using two distinct plan sponsor case studies as models.