The schedule of testimony, which lists the panels of experts
who will speak, is posted on the department’s website.
Hearings on the controversial rulemaking will take place over nearly
four full working days—August 10 through 13—at the Department of Labor (DOL)
offices in Washington, D.C.
With the hearings, the DOL is bringing to a head literally
years of heated public debate and discussion, much of it written into
formal comment letters. Many retirement
industry providers have joined mostly Republican lawmakers in
asking Labor Secretary Thomas Perez to put on the breaks and reconsider the
proposed rules. Others, especially independent fiduciary advisers, have
supported the DOL’s effort, taking a cooler view of the dangers of a
strengthened fiduciary standard.
During the multiple days of testimony, DOL officials will
hear from a wide range of advisers, recordkeepers and legal firms. Some of the
names mentioned in the agenda include Groom Law Group Chartered, Plan Sponsor
Council of America, Center for Retirement Research at Boston College, Insured
Retirement Institute, Voya Financial, Drinker Biddle & Reath, Pension
Rights Center, Northern Trust Co., Russell Investments, American Retirement
Association, CFA Institute, Committee of Annuity Insurers, Empower Retirement,
Ameriprise Financial, American Benefits Council and Financial Engines.
It is imperative that government employers educate their
workers about the very high cost of health care they will face in retirement,
according to “Factoring Health Care Costs Into Your Retirement Plan,” a new
report from the National Association of Government Defined Contribution
Administrators, Inc. (NAGDCA). While many government workers are often covered
by pensions, they are still likely to come up short on overall retirement
savings, not even factoring in health care costs, NAGDCA says.
While the report focuses on government plans, the same
warnings apply for private sector workers, given they have less access to
pension plans and often have no workplace retirement benefit at all. Inside or
outside government, a 65-year-old couple retiring today should expect to spend
as much as $220,000 on health care over the course of 20 years. On top of that,
health care spending is projected to grow 5.8% each year through 2022.
With these numbers in mind, the general population is in
dreadful shape when it comes to retirement preparedness, NAGDCA says. Only 22%
of workers are very confident they will have enough money in retirement,
according to the Employee Benefit Research Institute’s 25th annual Retirement Confidence
Survey, while the Brookings Institute finds nearly half (45%) of Americans
have no retirement savings.
Although nearly 90% of households in the highest income
quartile have a retirement account, only about a quarter of households in the
lowest income quartile have such accounts. Furthermore, the median retirement
account balance is $3,000 for working-age households and only $12,000 for
households approaching retirement, according to the Brookings Institute.
“The reality is, Americans age 50 and above may become the
first generation since the Great Depression to face retirement with greater
financial challenges than those preceding them,” NAGDCA says.
NEXT: The health care factor
“Health care is a big-ticket expense for most retirees,
especially with rising costs and the potential likelihood of needing long-term
care,” NAGDCA says.
Whereas in the past, employers picked up a significant share
of their workers’ retirement health care costs, “soaring health care costs,
Americans’ increased longevity, and the sheer size of the Baby Boomer
population” are driving a major shift in employer-provided retiree health
benefits, NAGDCA says. In fact, Mercer data shows that these arrangements are
disappearing; in 2013, only one-in-six large employers with 500 to 4,999 employees
offered health insurance coverage to retirees.
While Medicare will cover 62% of an individual’s health care
costs, the remaining 38% is a sizeable portion, NAGDCA notes. Medicare premiums
currently cost a healthy retiree $1,705.20 a year. Together with supplemental
insurance averaging $2,232, their total health care outlay each year is
$3,937.20. For couples, it’s 7,874.40. Deductibles and co-pays would be in
addition to these costs, NAGDCA says.
In addition to regular health care, many Americans will need
long-term care, whether it’s home health care, which currently averages $98,280
a year, according to MetLife Mature Market Institute; adult day care, which
averages $81,900; assisted living, which costs $191,700; a nursing home
semi-private room, which costs $202,575; or a nursing home private room, which
comes in at $226,300. It is also important to consider that Medicare doesn’t
cover long-term care, NAGDCA says.
NEXT: What advisers and sponsors can do
Americans need help well ahead of retirement to understand
these tremendous costs, NAGDCA says.
“Planning ahead for the likelihood of needing long-term care
can make the difference between financial security and devastation,” the
government group says. “To help fill the gap, many employers are taking a cue
from financial planners [by] offering programs and resources to help workers
recognize the challenges they face and plan for them.”
One key way to help people understand these costs is by
equipping them with health care cost tools, like retirement income calculators.
“A few may even suggest funding options or investment portfolio adjustments to
help workers achieve their goals,” NAGDCA says. “Of course, the more
information the tool has, the more reliable its observations and
recommendations can be.”
Employers can also offer a supplemental retirement plan. In
the government sector, that could be a governmental 457(b) deferred
compensation plan. In the private sector, for highly compensated employees,
that would be a non-qualified deferred compensation plan. Then there is also
the option of health savings accounts for the general worker population.
Education on long-term care insurance should also be part of the solution.
Employers need to encourage their plan providers to tailor
educational workshops, newsletters and guidance around the need to save for
health care and long-term care in retirement, NAGDCA says.
While government workers may be better off than the general
population because of their defined benefit pension plan, it is “not designed
to cover the budget gaps health and long-term care costs create,” NAGDCA says.
Sponsors and advisers need to make participants aware of this—and provide them
with answers.
NAGDCA’s full “Factoring Health Care Costs Into Your
Retirement Plan” can be downloaded here.