Benefits August 8, 2024

Costs Soar for Health Care in Retirement, per Fidelity Report

The Retiree Health Care Cost Estimate reveals that with health expenses for retirees up 5% since 2023, selecting better Medicare options could help many Americans.

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In its 23rd annual Retiree Health Care Cost Estimate, Fidelity Investments revealed that a 65-year-old retiring this year can expect to spend an average of $165,000 in health care and medical expenses throughout retirement. 

This estimate is up nearly 5% from 2023 and has more than doubled from the company’s first estimate in 2002. It also assumes that an individual is enrolled in traditional Medicare—both Part A and Part B—which covers most hospital care and doctor visits, and Part D–which covers prescription drugs.

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However, Medicare premiums, over-the-counter medications, dental and vision care and all other costs that Medicare does not typically cover are left to retirees to manage on their own, Fidelity noted. 

Retirees can add Medigap Plan G as a supplement to Medicare, which is extra insurance that helps pay for out-of-pocket costs, as well as Part D for prescription medication coverage.  

In Milliman’s recent Retiree Health Cost Index, it projected that a 65-year-old man retiring in 2024 with Medicare plus Medigap and Part D would spend approximately $281,000 on health care expenses throughout retirement, and a woman with the same coverage would spend $320,000. 

Fidelity did not specify gender cost differences in its estimate. 

Despite this upward trend in health care costs, Fidelity found that there continues to be a disconnect for many Americans between actual projected costs and how much they believe they will spend on health expenses in retirement. For example, recent Fidelity research revealed that the average American estimated spending about $75,000 on health expenses in retirement—less than half of Fidelity’s calculation. 

With more Americans living longer and health care inflation continuing to outpace regular inflation, Fidelity argued for the importance of workers planning for rising health care costs, such as by establishing a health savings account. 

New data from the Bank of America Institute’s Participant Pulse survey found that the average balance in an HSA was $4,930 in the second quarter of this year, up from $4,380 at the end of 2023. In addition, 37% of account holders contributed more than they withdrew so far this year.  

The Bank of America Institute also found that 73% of HSA contributions were spent on health care expenses, and 27% were saved. In the second quarter, on average, employees who are part of Generation X contributed the most to their HSA ($1,117), while Millennial employees saved the largest share of their HSA contributions (36%).  

When it comes to actually selecting Medicare coverage, however, many Americans approaching retirement age struggle with which plan in which to enroll.  

According to Fidelity, 55% of workers in a recent study conducted by Big Village said it will be difficult to enroll in Medicare coverage, and half expect to feel overwhelmed or confused when selecting their plan. Additionally, while nearly two-thirds of older Americans said they plan to review their Medicare options annually, Americans ages 75 and older are the least likely to review their coverage each year, despite shifting health conditions. 

Compliance August 8, 2024

Tyson Foods Defeats 401(k) Lawsuit Alleging Excessive Recordkeeping Fees

Employees had accused the company of overcharging participants for bundled recordkeeper fees and failing to solicit competitive bids for lower-fee options.

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A federal judge in U.S. District Court for the Western District of Arkansas on Tuesday dismissed a lawsuit filed against Tyson Foods Inc., which had accused the company of overcharging participants for recordkeeping fees. 

In Ruebel v. Tyson Foods Inc., filed in December 2023, three employees alleged that the amount the Tyson 401(k) plan charged to its participants for account management auditing and other basic recordkeeping tasks—called “bundled RKA fees” for short—was “unreasonably high” when compared to fees that similar retirement plans charged their participants for the same basic services.  

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Bundled RKA fees are deducted from plan participants’ accounts at the end of each calendar year. The plaintiffs sought to recoup in damages the tens of millions of dollars in fees they claim plan participants overpaid to the plan’s recordkeeper over a period of years.  

On the first count of the complaint, the employees alleged that Tyson violated its fiduciary duty of prudence, as required by the Employee Retirement Income Security Act, by permitting the plan to pay “exorbitant” bundled RKA fees to Northwest Plan Services, the plan’s recordkeeper since 2009.  

In the second count, the employees claimed Tyson failed to critically evaluate the amounts that Northwest was charging participants in bundled fees by not soliciting competitive bids from other recordkeepers. 

In a motion to dismiss the case, Tyson argued that the plans listed by the plaintiffs in their amended complaint as comparable were actually not similar to Tyson’s—both in terms of bundled RKA services and plan size. Tyson also argued that the plaintiffs were well aware that Northwest’s recordkeeping fees included more services than those provided by the other plans’ recordkeepers. 

U.S. District Judge Timothy L. Brooks wrote in his ruling that the plaintiffs admitted that Northwest “may provide extra bundled RKA services to Tyson’s plan that are not included in the standard and fungible services that all recordkeepers provide.”  

“Plaintiffs’ admission that the comparator plans were charged certain fees for basic bundled RKA services, but Tyson may have been charged higher fees for extra services means that plaintiffs have failed to state a plausible recordkeeping-fee claim,” Brooks wrote. 

Brooks found that the employees “failed to allege a plausible inference” that Tyson’s plan and the comparator plans charged different fees for the same bundled services, and Brooks therefore dismissed the breach of fiduciary duty claims. 

Additionally, Brooks wrote that the case must be dismissed because the comparator plans were not similar enough to Tyson’s in terms of asset size to allow for meaningful comparisons. Even though the U.S. 8th Circuit Court of Appeals has not explicitly defined what “similarly sized” plans mean, Brooks disagreed with the plaintiffs’ argument that a plan can be similar to another if the number of plan participants is roughly the same.  

Ultimately, Brooks ruled that the plaintiffs needed to have provided a meaningful benchmark of comparison, not just allege that costs were too high or returns were too low.  

According to its most recent Form 5500 filing, the Tyson Foods Inc. Retirement Savings Plan has more than $3.2 billion in assets and 120,135 participants.  

Law firms Walcheske & Luzi LLC and Carney Bates & Pulliam PLLC represented the plaintiffs in the case, and law firms Morgan, Lewis & Bockius LLP and Mitchell Williams Selig Gates Woodyard PLLC represented Tyson.  

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