1st Quarter 2014
The number of insured individuals with chronic conditions is alarmingly high and growing, a challenge that is not going to get easier as health care costs increase and population health worsens. This article discusses the seriousness of chronic illness in the United States currently, the shortcomings of existing programs aimed at managing chronic illness and emerging alternatives for increased success in addressing chronic disease.
There will be an estimated 157 million individuals in the U.S. population with chronic conditions by 2020. The cost burden of chronic illness is projected to grow to $4.2 trillion by 2023. Pharmacy benefit management programs and services should be a critical part of any strategy for managing the cost and quality of care associated with chronic diseases.
Chronic diseases and their complications are typically the main health care cost drivers of large businesses. In this article, a physician and an actuary explore what goes into making an employer sponsored medical clinic an integral part of a large organization's health care cost control strategy and how the clinic can fit into the organization's overall employee benefit plans.
A select number of employers are implementing or piloting reference- based pricing (RBP) as a way to encourage employees to become better health care consumers. This article provides readers with an overview of RBP, which procedures and conditions are suitable for RBP and six key considerations crucial to success for employers considering RBP.
Whether U.S. workers are saving adequately for retirement is an important subject for employer and public policy. The optimal target levels of retirement savings are here determined through a comprehensive consumption and savings model in a lifelong planning framework. The actual wealth profiles of a representative sample of U.S. households are computed from the Survey of Consumer Finances. The prevalence of savings inadequacy has worsened, by 4-5% of households, compared to 2007.
Recent U.S. Treasury Department proposals have focused attention on longevity insurance annuities, deferred annuities that begin payment at advanced older ages, such as the age of 82. While the United Kingdom has by far the world’s largest annuity market, and some insurance companies used to provide longevity insurance annuities, currently no companies provide these annuities. The main reason for the change is that proposed European Union regulations will require insurance companies to increase their reserves for these annuities.
What types of wellness program offerings will yield the highest participation rates? How can organizations tailor worksite wellness programs to meet the unique predilections of their own workforce? The authors address these questions through original research on employees’ perceptions toward current and hypothetical offerings.
On June 26, 2013 the Supreme Court issued its decision in United States v. Windsor, striking down Section 3 of the Defense of Marriage Act. The federal government can no longer treat same-sex marriages differently than opposite-sex marriages. This article discusses some of the issues employers will need to address in response to the Windsor decision regarding their defined benefit, defined contribution, health and other welfare plans.
2nd Quarter 2014
According to a number of recent studies, the millennial generation, today’s incoming young-adult employees, shows far more interest than older generations in a broad spectrum of employee benefits to protect them from various life risks. They are more cautious than boomers or Gen Xers in choosing their financial portfolios and more focused on planning for their long-term future. Millennials even value health insurance almost as much as older adults—despite the fact they’re much less likely to use it.
As we think about differences between generations—life and financial issues that change across the life span, technology usage, economic conditions and changing families—we find that employers are challenged to manage benefits that serve the varying needs of employees. This article reviews research findings on the mosaic of generational, family, decision-making and lifecycle issues that are important to financial security and employee benefits. It provides observations and recommendations for employers about addressing important postretirement and lifecycle-related issues in benefit plans.
Whereas saving for retirement is a challenge for many Americans, the nature of that challenge varies across age groups. This article demonstrates how effective communication may be tailored to age groups in terms of message, channel and framing. The authors discuss how various age groups prefer to receive defined contribution (DC) plan information, what works and what doesn’t across generations, and what the industry is doing—or failing to do—so that plan sponsors can implement a practical communication program that is targeted by generational category in a way that makes the most of their communication budget.
Each generation has a distinct outlook on its future, including retirement. This article describes three different generational groups, their trials and triumphs when it comes to preparing for their future, and how employers should respond. The key is to acknowledge these differences and address them through the three levers employers have to pull—plan design, the support offered to employees and the ways retirement readiness is promoted.
While multiple workforce generations definitely create new challenges, they also provide new opportunities. It takes a little more effort to target communication to different audiences, considering their attitudes and needs specifically based on their stage of life. But given how much employers invest in benefit programs, the extra effort results in better employee understanding and appreciation of the value of their benefits. And, as evidenced by the case study in this article, the effort helps drive the desired behaviors of employees.
It’s fairly common for people of the millennial generation to be of the mind-set, “What’s the big deal? We’re only in our 20s. We have plenty of time to save for retirement.” But as we ease into our 30s, it may be time to adopt a slightly more grown-up view of retirement and financial planning. This article is aimed at providing millennials with an overview of retirement security while acknowledging the special economic challenges they face. The steps it discusses—including beginning retirement saving early, increasing deferrals over time, taking advantage of retirement savings estimate tools, appreciating the power of compound interest and resisting the temptation to tap retirement savings for other purposes—will help move millennials down the path to increased retirement security.
The Obama administration has proposed to limit lifetime savings in tax-qualified retirement plans to an amount that would enable a 62-year-old worker to have accumulated the equivalent of the lump sum value of a $205,000 annuity in 2013. At conversion rates in effect at the beginning of 2013, the lifetime limit under the Obama administration’s proposal would be $3.4 million. The authors demonstrate that retirement accumulations for young and middle-aged high earners are already significantly constrained and that adding a lifetime cap on retirement plan accumulations on top of current compensation and contribution limits would further reduce young workers’ future benefit prospects.
3rd Quarter 2014
Consumer-driven health plans (CDHPs) have grown steadily and significantly over the past ten years in terms of covered employees, enrollment and assets under management. The authors explain the reasons for this growth and how CDHPs address health care costs. They discuss how pharmacy benefits present some of the greatest opportunities and challenges for CDHP growth. Challenges center on recent research that revealed decreased utilization and adherence among members of a CDHP population in four out of the five therapeutic categories examined. Although an influx of generic drugs has entered the marketplace, specialty pharmacy drugs will more than offset those savings, increasing the threat of noncompliance. Nonetheless, with appropriate design and implementation, CDHPs can be very effective for both employers and their employees.
Employers must make informed design and implementation choices in order for consumer-directed accounts to optimize the performance of pharmacy benefit strategies. Strategies must contemplate the prevalence of consumer-directed accounts, emerging technologies that support them and the potential impact on employee choices. Employers that align these factors may deliver pharmacy benefits at a lower cost and have an advantage over competitors. In pursuing this end, employers also may play a significant role in making health care affordable to as many Americans as possible.
One of the clearest findings of Mercer’s annual National Survey of Employer-Sponsored Health Plans is that more companies are thinking of adopting a consumer-directed health plan (CDH P) approach, and more employees are enrolling in CDHPs at the companies that offer them. The authors discuss the advantages for organizations that offer CDHPs, as well as outline key considerations for companies looking to update, optimize and align their CDHP programs with the realities of health care reform. They also explain how CDH Ps go hand in hand with wellness and health management strategies, both of which increase collaboration between employees and employers to control costs and give employees more personal responsibility for better outcomes.
With the passage of the American Taxpayer Relief Act of 2012 (ATRA ) on January 2, 2013, high-income individuals face a new set of taxation issues on both ordinary and investment income. This article highlights the provisions of ATRA and considerations for high-compensation individuals. Using illustrative scenarios, the author explains factors relevant to employer-sponsored deferred compensation arrangements and the four factors that affect pretax deferrals vs. after-tax investing. Finally, he discusses these issues from employers’ perspective of helping their highly compensated employees participate in this new tax environment. Combined, this information can help many individuals earning incomes in the low- to mid-six-figure range to take advantage of various planning techniques to manage their marginal tax rates and ultimately the total amount of tax they pay.
Designing benefits structures and advising employees across the spectrum of age cohorts present in the workplace are challenging for both technical and social reasons. While millennials tend to have high levels of financial vulnerability, a number of the financial problems common to this generation can be addressed by program design with product nudges. An example is autoenrollment in an employer’s retirement plan at a default contribution rate with investment in the default option. Millennials also tend to be comfortable with the social and behavioral aspects of nudging. In contrast, baby boomer finances are more idiosyncratic-making “one-size-fits-all” design and nudges more problematic. Boomers also tend to be less open to employer- driven intrusions into their finances, especially as they near retirement age. The more appropriate nudge for boomers is toward the use of objective advisory services.
Mobility programs get the right talent to the right place at the right time. Mobility programs that take into account employee needs as well as meet business expectations and talent objectives can experience program success and provide significant return on investment. This article discusses the evolution of mobile employee populations, how different generations of employees have divergent mobility program expectations and preferences, and several factors driving the nature of employee mobility beyond its traditional form. A modern mobility philosophy enables organizations to have a program that is agile to meet changing business needs as well as varying employee needs and expectations.
4th Quarter 2014
The Society of Actuaries’
2013 Post-Retirement Risk Survey, the seventh survey in the series, provides a general view of how the public perceives postretirement risks as well as an in-depth look at personal risk management strategies. This article draws on the cumulative research from the series, as well as other sources, to discuss personal risk management perspectives, the specific strategies individuals use to manage risk and how financial shocks can derail retirement if plans do not take such possibilities into account. The author discusses research on how and when people retire, planning for the death of a spouse or partner, housing and roles for employers, individuals and financial advisors.
Defined contribution (DC) plan participants need to understand how their savings will translate to income during retirement. For plan sponsors, this means focusing attention on adding lifetime income projections to plan reports, thinking about how to frame (or reframe) plan communications, building an education program and determining whether retirement solutions should be considered as a component of a DC plan and, if so, in what way. Although plan sponsors have a lot to consider, the author advises keeping it simple from the participants’ perspective, making it easier to generate participation that will, in turn, provide regular income for a more secure retirement.
Plan sponsors face ever-increasing scrutiny, pressure and risk associated with their defined contribution (DC) plans. Thoughtful management of plan expenses can greatly influence participants’ long-term savings levels and represent a crucial step in successfully exercising fiduciary responsibilities by the plan sponsor. This article focuses on how leading plan sponsors are addressing fees associated with both investment management and administration of their DC plans.
The search for a new retirement plan service provider may be one of the most important and complex responsibilities a committee has—one in which the devil is truly in the details. By paying attention to these details when searching for plan providers, you’ll help to ensure a smoother process in the short term and a more successful outcome in the long term. And that can translate into saving a great deal of time and money.
Despite recent improvements in the funded position of most defined benefit plans, many pension plans still face significant funding challenges. As market volatility continues, many are still exposed to significant downside risk. Plan sponsors that wish to address pension risk must decide whether to retain or transfer the risk. Preparation is vital to take advantage of market opportunities as they are presented.
While both 401(k) plans and individual retirement accounts (IRAs) vary in their fees and other features, for many people, a rollover is a mistake that is encouraged by advertising and conflicted advice. Regulatory actions by the Department of Labor and FINRA have addressed misleading, ambiguous and nontransparent fee disclosures that may contribute to the insensitivity of participants to fees, but these trade practices persist. This article addresses several issues relating to rollovers from 401(k) plans to IRAs, including the extent of inertia among pension participants, the extent to which defaults (which are to not roll over) are effective in influencing behavior of participants, the extent of financial errors made by pension participants and the quality of advice pension participants are receiving.
Employers need to control health costs while also keeping their workers healthy, productive and on the job. To those ends, BP America leased space to a full-service health and wellness center clinic on its Houston WestLake campus, where rates of asthma, diabetes, coronary artery disease and other chronic conditions are high. Despite growing interest in worksite clinics, there is remarkably little quantifiable evidence demonstrating their value. This study uses a comprehensive value-chain approach to compare utilization, clinical outcomes, and medical and pharmacy costs for medical center users and nonusers in Houston and other BP locations. Return on investment (ROI) is also estimated.