Compliance July 26, 2019

Mercer Talks Legislative and Regulatory Changes

Sources say Congress may try to tack the SECURE Act onto other moving legislation this fall, and they recount the many changes in health care regulations driven by President Donald Trump's executive order.

Reported by

In its latest Washington Update webcast, Mercer experts weighed in on legislative and regulatory developments for the Setting Every Community Up for Retirement Enhancement (SECURE) Act, health benefits and other regulatory and legislative topics.

The SECURE Act, a bipartisan bill that would significantly shift retirement planning and increase savings efforts, was passed in the House in May on a 417-3 vote. However, it has stalled in the Senate since, due to doubts from several Republican senators related to policy concerns.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

Since it’s not likely for the bill to pass the Senate at the moment, Mercer’s Geoff Manville, principal, government relations, expressed that followers of the bill will tend to pin the Act on another piece of legislation before year’s end.

“The most likely path forward here is for senate supporters of the bill to try to tack the SECURE Act on to some other moving legislation this fall,” he observed. “Supporters of the bill are still guardedly optimistic that will happen.”

Meanwhile, efforts to address the multiemployer pension plan crisis is a focus on Capitol Hill. Manville points out that while there are no plans to receive traction in the Republican-dominated Senate, policymakers from the Right are working with Democrats on securing a solution. For example, he says, the House recently passed a bill centered on creating a federal loan program for large and underfunded plans.

Updates on health care reform

While there has been no immediate effect related to the Affordable Care Act (ACA), there have been a number of regulations issued related to an executive order from President Donald Trump, according to Mercer experts. Most recently, the administration has released an order on pricing transparency, requiring hospitals to post standard charge information; directing health care providers, health insurance issuers and self-insured group health plans to provide expected out-of-pocket costs for items or services before patients receive care; and more.

Regulators also added 14 new services, items and prescription drugs for chronic conditions that health savings account (HSA)-qualifying health deductible health plans (HDHPs) can offer as preventive care.

In accordance to the 2017 health care executive order, regulators have issued final regulations offering two new types of health reimbursement accounts (HRAs), beginning on or after January 1, 2020. The first option, says Cheryl Hughes, principal, Law & Policy Group, Mercer, is HRA integrative with individual market insurance or Medicare.

“There are a number of rules that go with this HRA. For the individual market HRAs, the employer can’t offer a choice between the individual coverage HRA and the traditional employer-sponsored group health plan, it’s one or the other,” explains Hughes.

Additionally, employers must make the HRA available on the same terms and conditions to all employees within the same class. As for maximum dollar amounts, each can vary but will be dependent on a participant’s age or family size.  

There’s also a new excepted benefit HRA. For this type of HRA it must be offered along with a traditional major medical group health plan, but an employee doesn’t actually have to enroll in the health plan, it just has to be offered to them. The HRA must be offered to all similarly situated employees, and it has an $1,800 annual limit. It can reimburse Section 213 (d) medical expenses and some premiums, including COBRA, excepted benefits, and short-term limited duration insurance, but not individual or group coverage.

Data and Research July 26, 2019

Researchers Revisit ‘Spend Safely in Retirement’ Strategy

Researchers offer examples of how a retirement income strategy for middle income Americans, introduced last year, would work in different scenarios.

Reported by

Last year, a study by the Stanford Center on Longevity, conducted in conjunction with the Society of Actuaries, presented a framework of analyses and methods that plan sponsors, financial advisers and retirees can use to compare and assess strategies for developing lifetime retirement income.

The target group for the strategy, called the Spend Safely in Retirement Strategy, is individuals with less than $1 million in retirement savings. It entails delaying Social Security until age 70 and using the IRS required minimum distribution (RMD) rules to calculate income from savings. The best way for an older worker to implement the strategy is to work enough to pay for their living expenses until age 70; if possible, they shouldn’t start Social Security benefits or begin withdrawing from savings to pay for living expenses. The next best way to implement the strategy is to use a portion of savings to enable the delay of Social Security benefits as long as possible, but no later than age 70.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

In a new report, “Viability of the Spend Safely in Retirement Strategy,” the researchers offer examples of the strategy implemented. They first look at a single female currently age 65, with a current annual salary of $50,000 and $250,000 in retirement savings, and an annual Social Security benefit starting at age 65 of $19,476 and starting at age 70 of $27,646. The researchers find that if she retires at 65 and starts both her Social Security benefit and drawdown of savings using the RMD calculation, 71% of total income is covered by Social Security and protected from longevity, market, volatility and inflation risks, and 29% is covered by the RMD, subject to market, volatility, and inflation risks.

They then look at when that same retiree wishes to use a portion of her savings to establish a retirement transition fund that will enable her to delay Social Security benefits until age 70, even though she still retires at age 65. She decides to pay herself from her savings $27,646 per year from age 65 to age 70, the Social Security benefit she expects to receive at age 70. In this case, she sets aside $138,230 (5 years times $27,646) and invests this amount in a money market, short-term bond or stable value fund. She withdraws $27,646 in the first year. Interest earnings can increase her withdrawals in subsequent years. With the remaining savings ($111,770 = $250,000 – $138,230) she invests in a low-cost balanced or target-date fund (TDF) and uses the RMD to calculate the annual withdrawal. In this case, 89% of total income is covered by Social Security and protected from longevity, market, volatility and inflation risks, and 11% is covered by the RMD, subject to market, volatility and inflation risks. Using the retirement transition fund, she achieves an increase of 14% in her total retirement income without changing her retirement date. She also increases the percentage of her total income that is protected from longevity, market, volatility and inflation risks.

If she works just enough to enable delaying her Social Security benefit from age 65 to age 70, 72% of total income is covered by Social Security and protected from longevity, market, volatility and inflation risks, and 28% is covered by the RMD.

The analysis features other scenarios as well, including examples for a married couple, both age 65.

In addition, the report discusses possible refinements to the baseline strategy to address specific goals and circumstances, such as uneven expense and income flows, or alternative patterns of retirement income.

«