1st Quarter 2012
In order to face the many new challenges brought by the passage of the Patient Protection and Affordable Care Act (PPACA), employer sponsored group health benefit plans need increasingly bold tactics to stay ahead of rising health care costs. This article examines challenges, focusing on larger, self-funded health benefit plans, and suggests a variety of approaches to rethinking plan management and vendor relationships. These approaches will enable the forward-thinking plan sponsor to achieve better results and minimize the risk of hitting the excise tax thresholds, which take effect in 2018, on high cost, employer-provided health plans.
Whether they’re included in employer strategies or not, health care providers continue to be the primary influencer on health behaviors and health consumption. But if employers “dial up” their delivery strategies, they can leverage providers’ influence, accelerate employer health and productivity objectives, and bend the cost curve. This article identifies four postreform areas of immediate opportunity for coordinated delivery: on-site services, mobile delivery, community initiatives and medical tourism. Although employers will find no one-size-fits-all approach, any strategy based only on wellness and consumerism is missing a third leg that can help to accelerate the success of the other two.
Nine out of ten employers surveyed plan to respond to the Patient Protection and Affordable Care Act (PPACA) by moving to either a more requiring philosophy toward employer-sponsored health care or a corporate exchange. The choice between the two will depend on how much the company believes its core value proposition to employees is built around health care benefits. For companies that do not believe plan design drives engagement, would like to move to an environment where liability is fixed and administrative burden is reduced, and would like to enhance the choices available to employees, the corporate exchange will emerge as a vehicle to achieve these objectives.
For many employers, cancer is one of the most costly conditions. If it is left unaddressed, an increasing number of workers either living with cancer or serving as caregivers to cancer patients could increase employer costs significantly in the coming years. This article explains why employers should address the full gamut of workplace issues that a cancer diagnosis can create, developing a clear, comprehensive strategy for employees with cancer and their caregivers through careful design and implementation of benefits and astute selection of cancer service providers. An essential tool for developing such a strategy is An Employer’s Guide to Cancer Treatment and Prevention, which aims to assist employers in the creation and delivery of these benefits, and ultimately ensures that all employees have access to comprehensive, evidence-based and affordable cancer care.
It may be “common knowledge ” that healthy employees with healthy dependents working in an effective work environment make better workers and save their employers money in the long run. But until now, data to document the relative importance of various initiatives in achieving an impact on workforce performance has been lacking. This article presents findings from a recent study to fill that gap, examining the business case for being a healthy enterprise and exploring whether employers’ healthy enterprise efforts make a difference to their return on investment. The authors outline a strategy employers can take to become a healthy enterprise through dedicated leadership, a more effective workplace, greater employee and dependent involvement, and measured outcomes.
Given the current environment of increasing litigation against plan fiduciaries, today’s plan sponsors have more questions than ever about fiduciary risk and responsibilities. This article clears areas of common confusion and explains what protects against financial exposure for fiduciaries—and what does not. Understanding how to assess and apply alternatives in insuring and/or indemnifying fiduciaries can be a very effective way to help make committees more comfortable and effective in their roles. It can also avoid an unhappy surprise for the misinformed plan sponsor.
2nd Quarter 2012
Economic and business conditions have led to more global competition, fewer dollars for retirement and retiree health benefits, and challenges for individuals managing their own postretirement. The Society of Actuaries postretirement needs and risks research has explored the implications of the economic conditions in two sets of surveys. This article will bring together that research and other research to explore the postretirement impact on Americans of economic conditions. It will also look at how benefit trends interact with the economic conditions. It will focus on what we know about how people are planning, what they have and how they are doing. Private benefits to be considered will include traditional pensions, defined contribution plans and retiree health. Public benefits to be considered are Social Security and Medicare.
Since 2001, The Principal 10 Best Companies for Employee Financial Security program has profiled over 100 small- and medium-sized employers that provide outstanding employee benefits. While the need for benefits remains, a look back since the program began documents some pretty dramatic changes in employee benefit offerings and benefit management. This article describes those changes, along with one constant: Through all of the ups and downs of the last ten years, The Principal 10 Best Companies understand that committing to doing the right thing for their employees means doing the right thing for their business.
Plan sponsors overlooking their severance plans are missing opportunities for cost savings they could achieve by eliminating inefficiencies and maximizing plan design. This article reviews the history of severance plans, explains how supplemental unemployment benefit (SUB) plans work, provides plan sponsors with questions they should ask when reexamining their severance offerings, and suggests options for plan sponsors to consider in terms of optimizing their severance plan’s cost control and certainty, tax savings and appropriate cost sharing with employees. A case study illustrates how one Fortune 500 company reduced its overall severance spend while improving benefits for terminated employees in need of assistance.
With economic indicators again pointing toward stagflation, retirement plan sponsors might understandably be bracing themselves for a round of bloated plan contributions and expenses similar to those experienced during the 1970s. This article shows why plan sponsors are not condemned to repeat history, however, by providing insights into the economic factors behind today’s challenges and how the retirement plan changes of recent decades will affect how plan sponsors can manage through a new period of stagflation. If they act now, today’s savvy plan sponsors can hedge against sky-high costs far better than they did three decades ago.
Deficit reduction proposals for Social Security, Medicare and 401(k) plans that were put forward by national commissions in 2010 would have implications for workers’ retirement planning. To evaluate the implications of those proposals, the authors use an updated version of their retirement savings model, which is a rational, forwardlooking framework that aims to guide a household toward maintaining a roughly constant standard of living before and after retirement. The results show that most of the proposed reforms would lead to higher retirement savings for the household situations illustrated. By contrast, the increase in the Social Security taxable wage maximum would lead to a decrease in retirement savings. Taking all the proposals together, savings rates would be increased by one to 2.3 percentage points, and target retirement replacement rates would increase or decrease depending on household situations.
The age at which an individual chooses to start Social Security retirement benefits can be arguably the most significant factor in his or her ability to maintain financial security throughout retirement. Unfortunately, some financial advisors erroneously believe the client should maximize years of payments from Social Security, whereas others focus exclusively on a present-value break-even age, or money’s worth, analysis. In contrast, the authors argue that basing the decision on only one way of looking at the question is insufficient and propose that practitioners use a comprehensive decision model that accounts for the net present value, longevity risk and Social Security legal strategies in properly framing the solution. Planners working with clients need to set out all the options before clients can select the factors they value the most for their unique situation.
3rd Quarter 2012
Recent advances can give companies a solid set of return on investment (ROI) measurements on their health improvement programs, provided they are willing to invest in both wellness programs and measurement efforts that effectively gauge those programs’ merit. As this article explains, choosing the right methodology will depend on the health improvement programs being evaluated, data and resources available, and the degree of precision desired by management. The authors conclude that using several methods and multiple iterations under varying sets of assumptions is often useful.
While innovative smaller companies are implementing employee wellness programs, many smaller firms may point to a lack of resources, such as staffing and financial resources, to establish and sustain a wellness program. However, innovative companies realize that building a culture of health is a long-term business strategy directly related to improving the bottom line. This article highlights one company’s approach to wellness and the results of the company’s programs.
While the Affordable Care Act is trying to manage health insurance, as well as mandating coverage, a number of projects around the country are trying to manage the underlying cost of health care. By bringing back the concept of a true primary care physician, who provides 90% of your care and coordinates with your specialists, these programs are bending the curve of health care cost trends. Most are seeing a reduction in emergency room visits and hospital days in the double digits. Others that are taking fee-for-service insurance out of the picture altogether are experiencing even higher reduction rates.
With the Department of Labor’s new fee disclosure regulations scheduled to become applicable in 2012, defined contribution (DC) plan sponsors are looking closer than ever at their plan fees. According to the authors’ original research, difference in fees between retail and institutional mutual fund shares versus non-40 Act investment funds materially affect income replaced in retirement or the length that DC participants can expect to remain in retirement while maintaining a certain standard of living. Although common wisdom suggests that non-40 Act funds are the exclusive purview of large plans, the authors’ analysis suggests that even plans as small as $100 million in assets could benefit by moving to non-40 Act investment funds.
Who assumes the risk associated with management of an employer-sponsored retirement plan? Knowing the answer to that question is critical to good retirement plan governance. Not knowing the answer, on the other hand, could create additional risk for the organization and its retirement plan. This article explains why every plan needs good governance and how to get started. It also discusses identifying who does what, creating and documenting processes, and keeping a watchful eye over fiduciaries and nonfiduciary service providers.
Faced with the same economic pressures as other businesses in recent years, how would a leading financial services organization and Fortune 100 company redesign its own employer-sponsored retirement program in a way that didn’t put its workforce’s retirement security at risk? This article provides a case example, describing key elements from the state-of-the-art redesign and launch of TIAA-CREF’s retirement program for its own workforce.
Employers implementing a health savings account (HSA) program face a shared compliance burden with their employees. The law dictates that all HSAs are individual accounts that must be opened by an Internal Revenue Service (IRS)-approved custodian or trustee. The individual account features combined with a required third-party custodian place much of the compliance burden for HSAs on the employee and custodian rather than the employer. Employees are compensated for the additional burden because HSAs give them more control over their health care money and employers are generally pleased with their own reduced compliance burden. This article distinguishes between the responsibilities of the employer and the employee for HSAs.
4th Quarter 2012
Even the most effective plan design can have limited success when the communication of the newly designed plan is not properly planned and implemented among all affected audiences. This article discusses the importance of using research to understand employee perspectives as well as the essential elements of a successful communication strategy. A true communication strategy today often uses a mix of traditional tools and new technologies to deliver consistent messages to employees and affect their behavior, ensuring that all the aspects of plan design and implementation work together for the benefit of employer and employee alike.
Retirement readiness is a measure of one’s ability to have a financially secure retirement. Unfortunately, most participants don’t know their level of retirement readiness, and the overwhelming majority of plan sponsors use participation rates to measure the success of their retirement plans without measuring if employees are on track to have adequate retirement income. Because neither the majority of participants nor plan sponsors have assessed participants’ retirement readiness— or how much they need to save to achieve it—most plan sponsors will need to take action if they are to ensure the success of their retirement plan. This article discusses how plan sponsors can implement a strategic plan design, coupled with participant education, by establishing a goal for adequate employee income in retirement, setting participants up for success and implementing effective education best practices.
Schedule SSA of Form 5500 has been replaced by the recently released Form 8955-SSA, raising uncertainties for plan sponsors over how to understand and comply with the new rules in order to avoid costly penalties. This article reviews Form 8955-SSA and its history in order to help plan sponsors decide if their plan meets the statement requirement, review plan processes for participants ending employment, and examine whether defined contribution and defined benefit plan statements comply with requirements. Ultimately, whether the plan intends to rely on its existing process or add language to future deferred vested letters, plan sponsors should work with their consultants and legal counsel to ensure compliance with Form 8955-SSA statement requirements.
If the U.S. health care system is to improve, consumers must make better health care decisions. An innovative solution is that of the health advisor. Whether labeled a health concierge, health guide, health advocate or health coach, the advisor’s function is to guide patients through the health care system in an informed way, much like how financial services advisors help customers navigate the financial system. This article reviews the current state of health care and explains why personalized communications through health advisors can address systemic cost drivers as well as reduce strain on employees’ wallets, boost employees’ health and improve the plan sponsor’s bottom line.
One of the important communication issues for employers is how much education they will provide their employees about retirement and what support they will include for major retirement decisions. The Society of Actuaries has recently issued 11 decision briefs relating to important retirement decisions. The briefs identify questions to ask, considerations and trade-offs in the retirement decision-making process.This article is based on those briefs and discusses the issues and trade-offs involved over when and how to retire, how to use resources to produce income, Social Security claiming, key housing decisions, and health and long-term care financing decisions.
There appears to be a bias in some retirement planning programs to use rates of return that are too high. For example, some programs do not take into account fees, and many programs do not take into account the evidence from behavioral economics that individual investors tend to do worse than financial markets due to errors they make in managing their investments. For these reasons, rates of return of 7% or higher for long-term projections for balanced portfolios, including bonds, appear to be too high. In addition, some deterministic programs, not using Monte Carlo simulation, do not adequately account for risk and often give the risky advice that shortfalls in savings can be made up by investing in riskier assets with higher expected rates of return.