1st Quarter 2018
Defined contribution (DC) participants who simply have not saved enough cannot expect any available solutions to magically create a cushy retirement income stream out of nothing. However, plan sponsors can be proactive in working with participants to counter magical thinking, help them set reasonable goals and develop a coherent path to and through retirement. This article explains some of the key drivers of DC participants’ retirement decision making, common missteps by those making retirement decisions and how employers can help workers formulate a better retirement plan.
Employers must strike the right balance in providing benefits that are valuable and attractive enough to manage an orderly succession and turnover of their workforce while also achieving greater control in the management of costs and long-term commitments. This article describes changes in the retirement benefits landscape, the importance of understanding how today’s employees perceive their benefits, risk shifting under defined contribution (DC) plans and how DC plans can be “pensionized” in order to provide successful outcomes for participants. The author also discusses funding nonqualified retiree benefits such as employer-paid retiree life insurance, executive benefits, deferred compensation and employer-paid retiree medical.
By far, the most common form of allocation help for defined contribution plan participants is currently delivered in the form of target-date funds, which have been phenomenally successful in the marketplace. However, providers of managed account solutions are promoting new approaches and claiming that the benefits within these solutions more than outweigh their higher cost, especially in light of the declining costs of managed account services. At the same time, both managed account and target-date fund solutions are evolving to better serve a wide variety of participants, yet Department of Labor (DOL) guidance on the fiduciary aspects of selecting and monitoring these products has not kept pace. As a result, plan sponsors are faced with difficult yet highly consequential decisions within a complex and litigious market. This article explains what plan sponsors must do to meet this challenge.
Defined contribution (DC) plans are the primary retirement planning vehicle for U.S. workers, and target-date funds (TDFs) are currently popular for many DC participants. However, no two TDFs are the same and, as a result, returns have varied widely. For plan sponsors to help participants pursue their retirement income goals and help reduce the risk of litigation, they need to understand the methodology behind TDFs, the right questions to ask of providers and the framework DOL has provided for selecting and monitoring TDFs. Managed accounts also are emerging as a qualified default investment alternative (QDIA) that offers participants a more customized asset allocation than is available in a TDF. This article is designed to help plan sponsors that want to understand the best practices for evaluating and managing TDFs and managed accounts in order to offer the most beneficial DC plan possible to their employees.
A targeted retirement plan, coupled with financial wellness guidance, can help employees build an achievable vision for life after work. To succeed, however, employees must avoid five common retirement investing mistakes: (1) starting too late, (2) not saving enough, (3) investing too conservatively, (4) failing to prioritize retirement savings over other financial goals and (5) timing the market. This article describes each mistake, outlines what steps employers can take to help employees avoid them and identifies the business case for why employers should take those steps.
Changes in the Governmental Accounting Standards Board (GASB) reporting requirements will increase the liabilities of many state and local governments’ health plans in 2018. Although many public employers already have taken steps to control their retiree health benefit liabilities, additional actions may be helpful in the near future. The private sector has experienced similar changes and has been very aggressive in working to minimize their effect. This article describes strategies that many private companies have used to avoid a significant liability increase and can serve as a road map for public sector employers in dealing with GASB changes.
When we think about longevity and how long people are living today, we often think about money and financial calculations. However, there also are many human aspects to longevity that we should consider, including people’s perceptions of longevity and how to maintain social engagement as we age. Employees have to consider longevity not only when planning for themselves but also when planning for how to help their parents. Several projects conducted or supported by the Society of Actuaries (SOA) focus on the human side of longevity. This article provides insights on that research and helps employers assist their employees to think about the related issues.
The level of future Social Security benefits is an important aspect of retirement readiness. This article argues that for purposes of financial planning and retirement readiness, there is no justification for the assumption commonly made in studies and online advice that benefits will not be reduced for future retirees. We argue that the retirement readiness problem is worse than is commonly measured because the value of future Social Security benefits is often overstated.
2nd Quarter 2018
Benefits marketplaces create an entirely new benefits experience for employees to shop online for their health and other benefits. A wide array of product and plan choices can allow employees to create customized portfolios of benefits tailored to their own needs. Through these online marketplaces, employers can offer more benefit choices to their employees while also controlling benefits costs in the face of annual rate increases from medical carriers. In fact, 86% of employers that participated in a 2017 Willis Towers Watson survey regarding employer satisfaction with benefits marketplaces reported that moving to an online marketplace had helped them control benefits costs. In this article, we look to the results from companies that have already made the shift to a benefits marketplace to understand employee buying patterns over time and the implications of system recommendations on employee purchases.
Given the threat environment facing plan sponsors today, it is natural to wonder what steps they can take to address cybersecurity concerns and what resources are available, both from the government and private entities. This article will provide a review of some of those resources and initiatives that are seeking to address cybersecurity more comprehensively for the employee benefits industry and steps plan sponsors can take to improve their cybersecurity. Developing a productive, secure and effective program for conducting cybersecurity due diligence and management is still something of an art, but it is something that virtually every industry is striving to accomplish.
Over the next four years, the robotic process automation (RPA) market is expected to grow to about $200 billion, with the vast majority of Fortune 1000 companies adopting it. This article shows how, by beginning a journey now to transform the human resources (HR) function through RPA, employers can be in position to lead the disruption and not be compelled to react to it.
Roughly half the U.S. population is covered under health plans sponsored by large employers. That puts these organizations in a powerful position to demand increased consistency and value from the health care system, starting with their local markets. Through provider network optimization, employers finally have a practical approach to understanding their local health care ecosystems and engaging in strategies that drive their employees to lower cost providers that truly deliver quality care. Through this new level of transparency and insight, proactive employers are empowered to make intelligent decisions on how to guide their people to the best quality care at competitively priced facilities.
For plan sponsors with a significant percentage of participants who do not have access to the technology taking over our benefit plans, there is a worry that these participants will be left behind. Participants in this position feel frustrated and angry because they have difficulties connecting to their benefits. Plan sponsors in this area also have a great deal of frustration as vendors implement no-paper systems, roll out automation and use other technology that makes participants more disconnected from their benefits. The more disconnected these participants become, the less they will appreciate the benefits provided by the employer.
Employers with self-funded medical plans feel helpless these days in their struggle to control rising plan costs. Medical and pharmacy costs are continuing to increase dramatically year over year, while opportunities to truly manage them seem scarce. Centers of excellence (COEs) have represented a savings opportunity for large self-funded employers for a number of years, and the trend is moving downstream to smaller self-funded employers. Employers across the nation need to understand how a centers of excellence program could work for their population to change members’ care decisions, improve health outcomes and reduce unit costs to maximize the savings potential for common procedures.
Adverse drug events (ADEs) are a major public health issue, and identifying which patients in a large population require targeted interventions can be quite difficult. Computational tools developed with clinical and pharmacological data can be highly valuable for identifying those patients. This project presents the application of a novel risk stratification tool that utilizes only medical claims data to identify members at high risk of ADEs in 2,528 members from a selffunded employer population. Algorithms were designed to score five different risk factors to personalize the patient’s risk for quick mitigation via health care professional interventions. In total, 15,911 medications were considered in the analysis, indicating an average of five medications per member (ranging from one to 48 medications per member). In total, the tool was able to identify 324 members (12.8%) considered at high risk for ADEs. Furthermore, 61 members (2.4%) considered at the highest risk for ADEs were identified by isolating those members who were in the high-risk groups for all five medication risk factors. In conclusion, our results indicate that a risk stratification tool based on medical claims cannot only quickly identify high-risk members but also provide insights into how to intervene and prevent costly medical expenditures.
Most employee benefit projects (like all projects) have certain logical, critical or potential failure points. In many cases, project failure can spell disaster, resulting in impact to employees, organizations and careers. Growing use of new technologies and/or innovative approaches may increase project risk because many innovative approaches and new technologies have not been tried or proven. A simple exercise, known as a
project premortem, can dramatically reduce project risk for employee benefit projects. The purpose of this article is to provide seven steps for successfully implementing a project premortem process. While the process is applicable to all projects in all industries, this article examines the applicability of the premortem to employee benefit projects, especially those using newer technology or innovative approaches.
3nd Quarter 2018
With growing numbers of working people providing informal care for sick or elderly relatives and friends, employers face new challenges—but also new opportunities—to support caregiver employees and, in the process, ensure a productive and stable workforce. This article addresses the difficulties employees can face when work and caregiving intersect and how employers can offer support regard-less of company size or resources. Companies that wish to attract the best and brightest talent, as well as retain high-quality staff, need to offer competitive benefits. Across the corporate landscape, these have already started to include caregiving benefits.
Unemployment rates are decreasing and consumer con-fidence is higher than it’s been in over a decade, yet employees do not feel financially secure. This is a key finding from MetLife’s 16th annual U.S. Employee Benefit Trends Study (EBTS), released in April 2018, which saw that financial concerns among employees are rising: Less than half (40%) of employees say they feel in control of their finances, compared with 44% two years ago. On top of this, nearly half (46%) of employees say they feel overwhelmed by financial de-cisions. . These facts point to a growing business need that presents an opportunity for employers not only to limit the potential negative impacts of a financially unwell workforce but also to take on a caretaker role.
Employers must now come to grips with the realization that their workforce has become a “careforce.” More than one in six U.S. employees are engaged in informal caregiving for a family member, a number that trends ensure will only grow. Caregiving impacts employee absence, work performance and employee health care costs. In order to reduce these impacts, as well as attract and retain a care-force, employers must themselves enter the world of caregiving. Supporting a careforce is about much more than paid leave. This article discusses approaches employers are taking now and might take in the future as they assume the role of caretaker.
Society of Actuaries (SOA) research includes in-depth interviews with individuals aged 85 and over (2017), focus groups with individuals retired 15 years or longer (2015), in-depth interviews with caregivers of individuals retired 15 years or longer (2015) and focus groups with relatively recent retirees (2013). The interviews with retirees aged 85 and over and the research with individuals retired 15 years or longer offer perspective on how people are doing, what they have done in retirement and what they are planning to do. In addition, SOA has conducted postretirement risk surveys of preretirees and retirees every two years since 2001. Integrating results from these studies can help identify opportunities for employers to support employees and retirees in their planning efforts. The emphasis of this article is on issues other than saving and investing. Quotes from the focus groups and interviews bring some issues into real-life focus.
Today’s employees are working and living longer and trust their organizations to help them achieve their financial goals and retirement savings adequacy. A recent report from the World Economic Forum (WEF) revealed that the existing global patchwork of long-term savings systems, laws, regulations, schemes and products is inadequate to support current and future generations into old age. In some countries, retirees are relying on outdated public and private pension systems that are unsustainable. In others, a rapidly rising middle class is finding there is virtually no system in place to help them save for old age. Governments, employers and financial intermediaries all have both the incentive and the ability to help societies and individuals mend the long-term savings gap. Each stands to reap huge rewards by helping to ensure that their citizens, employees and customers are able to save efficiently and appropriately for the future.
Financing ever-increasing long-term care (LTC) costs as the population ages has become a major issue for individuals and policy makers. Purchasing LTC insurance while young and healthy seems to be an obvious solution, but the LTC insurance market has not become robust. In 2010, Congress experimented with allowing employers to offer LTC insurance as an employee benefit, but politics won out in the battle of the statutory constraints within the Community Living Assistance Services and Support (CLASS) Act versus the ability of the Secretary of Health and Human Services to issue regulations that were actuarially sound. This article opines that Congress should revisit and reintroduce the CLASS Act, whether in its original form or, with some hindsight, in an improved form. This would allow employers to become the “caretakers” in the LTC universe by assisting their otherwise young and healthy employees in securing at least a floor LTC insurance coverage amount and by educating those same employees about LTC in general.
Many rules that otherwise apply to qualified retirement plans either do not apply to governmental plans qualified under Internal Revenue Code Section 401(a) or apply differently. This article provides a high-level introduction to governmental tax-qualified retirement plans and highlights many of the differences in applying rules of the Code. Differences in application of many of the rules are summarized in convenient tables. This article also briefly discusses the applicability of the Age Discrimination in Employment Act (ADEA) to governmental plans.