Compliance October 11, 2017

Meant to Aid Struggling Multiemployer Plans, MPRA Adds Complications

Under the Multiemployer Pension Reform Act, the Treasury must review pension plan applications for benefit suspensions—but the process is proving more stringent than applicants and industry experts had anticipated.
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Since the enactment of the Kline-Miller Multiemployer Pension Reform Act (MPRA) in December 2014, 15 plans have filed MPRA benefit suspension applications. The Treasury Department has approved three plans; the first was Cleveland Iron Workers Local 17 Pension Fund; the benefit cuts went into effect on February 1, this year. The second was United Furniture Workers UFW, which was approved for a partition by the Pension Benefit Guaranty Corporation (PBGC) and early financial assistance under MPRA. Most recently, the Treasury approved the third plan: the New York State Teamsters Conference Pension and Retirement Plan, although the union is disputing the actual vote.

According to multiple sources, somewhere between 9% and 15% of multiemployer pension plans are in critical and declining status and are projected to become insolvent, having no assets available to pay benefits, within the next 20 years. “Most multiemployer plans are not in financial distress. A small number of plans, however, are deeply troubled and must take action or they will not recover,” says Michael Scott, executive director of the National Coordinating Committee for Multiemployer Plans (NCCMP), in Washington, D.C.

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“Before MPRA, there was only one shade of gray, and that was ‘critical,’ and now MPRA added a new category, ‘critical and declining,’ to indicate plans that expect to run out of money within 20 years,” according to Eli Greenblum from Segal Consulting, headquartered in New York City.

Background

Generally, when a multiemployer plan has too few assets to pay benefits, the PBGC steps in with a loan, according to the NCCMP. The PBGC is a government corporation, funded by plan premiums, that provides a small, statutorily guaranteed benefit to the participants of insolvent plans. Since 1975, 53 multiemployer plans have received financial assistance, and another 61  have been booked, as they expect to become insolvent as well. The statutory maximum guaranteed benefit at 30 years of service is $12,870 per year, and the program has a significant deficit in program assets to be paid.

In contrast, Scott explains, under MPRA, “plans may make an application only if they are able to preserve benefits at or above 110% of the amount that any given participant would receive at the PBGC, and restore the plan to solvency.” Under MPRA, participants will receive more than they would if the plan became subject to the PBGC guarantee.

MPRA was intended to provide multiemployer plan trustees with the difficult, but necessary, tools required to restore their troubled plans to solvency and to protect retirees from the even larger benefit reductions they will see when their plans go insolvent and become subject to the PBGC guarantee, says Scott.

The retirement industry was hopeful when the act first passed. But, Greenblum says, “Treasury needs to re-examine its process so that plans can feel they have a chance to be successful on the attempt.”

For instance, of the three MPRA application approvals to date, all had previously applied to the Treasury and then withdrawn—presumably because they had conversations with that department and knew the application, as it was, would be rejected. Each plan then resubmitted its application and went through the process again. Greenblum notes that, in order to reapply, an organization must pay for revised actuary projections and reinform participants that their benefits will be cut.

Another Alternative Needed

Why is it that these organizations have had to reapply? Says Scott, “MPRA was intended to give deference to the judgment of the trustees [and their plan professionals], in evaluating the application. Treasury has second-guessed the trustees’ determinations—in whether a set of benefit adjustments is ‘equitable,’ whether the expectation of future work is correct—and [those of] the plan professionals, on any number of projection assumptions, rather than granting deference to the people who are closest to and have the best understanding of the problem.”

In addition to the three plans that were approved, there have been five rejections including Central States, Southeast and Southwest Areas Pension Plan more than one year ago. Two other plans applied, withdrew and have not reapplied. Another five plans are in the approval process.

Greenblum says, “PBGC’s approach to MPRA candidates seems to be far different than the Treasury approach, to date.”

For instance, PBGC officials work with plans applying for partitions.

According to a PGGC official, “In the preamble for a partition, we encourage people to come in for an analysis. Often we have people just calling. We can do some rough estimates and calculations to figure out what group would need to be partitioned off, for instance. With some back and forth, the plan sponsor would know if it is mathematically possible or not possible. It’s good for them, in case it’s not going to work at all. Many of our informal discussions are really educational. It doesn’t always turn into number crunching, but we feel very strongly about helping our people understand our regulations and the aspects of the law that refer to the PBGC.”

Scott says that technical corrections to MRPA are needed to ensure it is implemented as intended. “It needs to be faithful to the original intent of Congress and the multiemployer community that drafted the legislation,” he says. “Treasury was to issue guidance soon after the passage of the 2014 law, but instead temporary guidance was issued. Final guidance was not issued until 10 days before the Central States plan application was denied. The withdrawn and resubmitted applications that have been approved to date reflect both the reissuance of significantly changed guidance from the temporary guidance and the evolving position of the Treasury as it reviews these applications,” he says.

“For those that Treasury unfortunately denied,” he adds, “another alternative will be required. We are working on that alternative. But time has passed, plans have continued on their path toward insolvency, and any fix will likely require more significant changes than were previously contemplated.”

Benefits October 5, 2017

Saving on Health Benefit Costs With Self-Insured Plans

There is a move among employers to self-insure health benefits, but if employers don’t act like insurers, they are missing out on the total cost-saving potential.
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To combat rising health costs, many companies have turned to self-insurance—covering their workers’ health expenses directly.

 

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Philadelphia-based Andrew Cavenagh, founder and managing director of Pareto Captive Services, a firm that helps midsize businesses self-insure, says his firm targets employers with between 50 and 500 employees. He notes that, traditionally, employers of this size have not self-insured because they fear volatility and risk. Pareto creates what is called a “captive,” in which employers fund a pool of money, and, if they have a bad claim, the captive will pay it out. “This makes it less risky and volatile,” Cavenagh says.

 

He adds that self-insuring is becoming popular because it can save employers—and employees—considerable money. For example, fully insured carrier premium taxes in some states are half a percent or more; state taxes are paid at a different rate for self-insured plans.

 

Cavenagh also says premium payments will be different. If an employer is fully insured using a health insurance provider, it may pay that provider $1 million in premiums. If the employer moves to self-insure, it won’t pay such a large premium to an insurance provider, but it will buy a catastrophic stop-loss policy to cover catastrophic claims. Cavenagh likens fully insured to buying an automobile insurance policy that covers all maintenance for auto care—oil changes, tire rotation, etc.—but people want to pay the small stuff themselves and leave the large and unknown claims to the insurer—which would be akin to self-insured plans.

 

He notes, however, that self-insured employers can also buy an aggregate stop-loss policy for paying smaller claims.

 

Cavenagh says employers that have been with Pareto for four years have an annual trend of less than 3%. For clients with the firm for five years, the annual trend is flat or negative.

 

These cost savings are one win for employers, but, Cavenagh says, an even better one is gaining control to create bigger cost savings. For example, employers can become more creative with their pharmacy benefit format, or they can offer employees incentives to go to high-value providers.

 

Acting Like the Insurer

 

Rob Piazza, product manager, analytics, at Benefitfocus in Charleston, South Carolina, says many employers fail to realize the cost savings they could because they overlook this opportunity. “Although they’re taking over the role of ‘insurer,’ few employers are acting like one, and they’re likely losing millions because of it,” he says.

 

According to Piazza, now that employers have taken on the risk of payers—i.e., insurance companies—they need to adopt the sound management strategies of payers, and there are three areas of focus: administrative management, cost control and benefit plan design.

 

Administrative management involves working with a third-party administrator (TPA) for claims administration, working with an insurance broker and using stop-loss insurance to help with high-cost claimants. “What scares me is how often you hear that employers have no idea what their medical trend is or their cost-target, and many say their broker handles that,” Piazza says. “If partners don’t show the medical trend in the right way or don’t know how spend is going up, employers need to shop around. They need to know their numbers.” He adds that employers don’t know how to manage pharmacy costs but their pharmacy benefit manager (PBM) should. If an employer is paying for a service and trends are still going up, it needs to shop around, he says.

 

One way to control costs is to establish a wellness program, but employers need more than that, Piazza says. “Many times employers working with a wellness vendor may be paying $100 per employee but only getting a risk assessment. They really need to work with a disease management vendor,” he explains. He says 5% of employees account for 50% of the employer’s cost, and generally the reason is six out of 10 Americans have at least one chronic condition; four out of 10 have more. Disease management programs use metrics to see who is taking medicine, having regular screenings and seeing their doctors. Piazza cites Rand research that found the return on investment (ROI) for disease management programs is $3.8 to $4 per dollar in costs, while wellness program ROI is 50 cents on a dollar.

 

“If employers have enough money do both a wellness and disease management program, that’s great, but, if they don’t, disease management is better,” he says. “You know which members need help and can make an outreach to avoid inpatient hospital admissions and, even more so, readmissions.”

 

Cavenagh notes that employers may use cancer screenings, and one Pareto client contracted with a local radiology and imaging center so that co-pays and deductibles were waived for employees who went to this high-value provider.

 

Pareto is also starting a series of shared primary care clinics. “We are actually trying to spend twice as much on primary care to save money on specialists, and we’re establishing it collectively so our clients can use it,” Cavenagh says.

 

As for plan design, Piazza says it shocks him that many self-insured employers still don’t charge more for smokers. “Many say they want to offer a rich benefit plan for families, but they don’t have to keep the extra money, they can reinvest it into a wellness program or health savings account [HSA] contributions,” he observes.

 

In addition, adding a spousal surcharge for spouses that have access to insurance elsewhere makes sense, according to Piazza. However, he says, the policy needs to be explained because it sounds bad to be charged more for having the family covered on the plan. “Employees need to understand that if their spouse is a homemaker, there is no surcharge, but if [that person] is offered benefits from another employer, it makes sense to [add the charge],” he says. “That’s one of the key drivers of ‘per employee, per year,’ costs.” According to Piazza, employers that generally pay about $12,000 per employee per year have 2.7 members per employee, but those paying $9,000 per employee per year have a member-per-employee ratio that is lower. Just like the smoking surcharge, he says, the spousal surcharge can be reinvested to make health benefits even richer.

 

“Self-insured employers have a balancing act between wanting to offer a rich package to attract and retain talent and controlling cost,” Piazza says. “Cutting cost is not restricting benefits but [includes] investing more intelligently to improve member outcomes to ultimately contain cost for employees and employers.”

 

As Cavenagh observes, there is no one plan design that is effective for every employer. Plans need to be designed individually based on employers’ needs.

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