Benefits May 2, 2013

Participants Need a Retirement Income Plan

May 2, 2013 (PLANSPONSOR.com) – Whether employees will have enough income in retirement is the hot topic of the industry.
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But, while retirement plan providers and plan sponsors are offering information, calculators and retirement income products, this is not enough. Individuals need a process for converting their resources into income in retirement, contended Bryan Hodgens, SVP and director of sales at Wells Fargo, speaking at the 42nd Annual Retirement & Benefits Management Seminar, hosted by the Darla Moore School of Management of the University of South Carolina, and co-sponsored by PLANSPONSOR.   

Hodgens suggested six steps in the process for participants: 

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1. Estimate duration of retirement assets; 

2. Identify retirement risks and ways to manage risk; 

3. Identify distribution, tax and estate issues and opportunities; 

4. Identify options for filling the gaps; 

5. Convert resources into income; and  

6. Throughout retirement, evaluate and maintain or update the plan. 

Participants need help understanding how their investment allocation should be different in the distribution phase than it was in the accumulation phase. Diversified income planning includes stable income, growing income and guaranteed income, Hodgens said. Stable income could include government, corporate or municipal bonds and/or certificates of deposit. Growing income could include dividend-paying stocks, mutual funds and closed-end funds. Guaranteed income could include fixed and index annuities, immediate annuities, variable annuities and Social Security.

There are several approaches to income distribution: 

  • A systematic withdrawal plan, whereby a participant takes a certain percentage of assets from accounts periodically, is easy to understand and calculate for participants, but it is subject to “sequence of return” risk—the percentage withdrawn may be acceptable in an up market, but may be too much in a down market, Hodgens noted. 
  • An “income-only” approach to distribution, whereby the participant lives off the interest and dividends from his portfolio is also subject to “sequence of return” risk, as well as inflation risk.  
  • A bucket approach, whereby a participant establishes phases for income distribution, could include a 10-year phase for using short-term investments for income, a second 10-year phase for using income and growth investments for income, and a third phase using guaranteed income. 

Annuities are one way to address retirement risks and close retirement savings gaps, according to Hodgens. He mentioned that the downsides of an annuity are a lack of liquidity and higher expenses. However, Hodgens believes retirement income products will only get better in the years to come.  

Hodgens noted that many providers are beginning to take a more holistic approach to retirement income and include planning services as well as products and tools. Planning early and being realistic is important for participants, he concluded.
Benefits May 2, 2013

Understanding Health Care Exchanges

May 2, 2013 (PLANSPONSOR.com) – Legislation will soon necessitate that qualified health care plans (QHP) be offered through a marketplace or exchange.
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Karen McLeese, vice president, Employee Benefit Regulatory Affairs, for CBIZ Benefits and Insurance Services, told PLANSPONSOR, “It should be understood that only certain plans will have access to such exchanges, namely smaller employers. How is a ‘smaller employer’ defined? Generally it’s defined as having fewer than 100 (and in some cases, 50) employees. In terms of advantages [for employers to use exchanges for their employee offering], the jury is still out, as it will depend on what products are offered in the marketplace.”

One factor that plan sponsors will need to consider when deciding whether use such an exchange is whether it is even available due to the company’s size, said McLeese. “If the state opens up exchanges to larger employers, those plans will have to meet the required standards such as covering at least some essential benefits (i.e., surgery, etc.). Other factors to be considered include how many providers there are, whether there is enough expression in benefits design, and whether you can contract with different providers and hospitals.”

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McLeese noted that something else to be considered is that employees can go to an exchange themselves to get coverage, either because their employer does not offer coverage or because their employer’s plan is too expensive for them. Depending on the circumstances, this might enter into the area of employer shared responsibility risk and necessitate the paying of an excise tax by the employer. “If you have questions about something like this, you should check with your benefits adviser,” she said.

According to McLeese, there are eight primary features of exchanges:

1. The exchange will certify, re-certify and de-certify QHP. A QHP is a plan that meets certain criteria including, but not limited to, providing essential benefits and complying with certain deductible and out-of-pocket restrictions.

2. There will be various so-called metal tiers of QHP that will be offered through the exchange. Health insurance plans in the exchange have to meet distinct levels of coverage -- each metal tier corresponds to an actuarial value. 

  • Bronze plan: Required to have an actuarial value of 60%. Covered individuals would be expected to pay 40% through deductibles, co-pays and other cost-sharing features. 
  • Silver plan: Required to have an actuarial value of 70%. Covered individuals would be expected to pay 30% through deductibles, co-pays and other cost-sharing features. 
  • Gold plan: Required to have an actuarial value of 80%. Covered individuals would be expected to pay 20% through deductibles, co-pays and other cost-sharing features. 
  • Platinum plan: Required to have an actuarial value of 90%. Covered individuals would be expected to pay 10% through deductibles, co-pays and other cost-sharing features. 

3. The exchange will assign a quality and price rating to each QHP, giving an apples-to-apples comparison when it comes time to choose one.

4. The exchange will also provide standardized consumer information about the QHP.

5. Consumers will be offered an electronic calculator. The calculator will include the ability to show any discount available after government assistance.

6. Consumer assistance is also available through a toll free number or a website showing comparative data among plans offered, as well as certain financial information related to the plans. Consumers will be assisted with eligibility, enrollment, program specifications, and general education with a goal of informing the public about the availability of the exchange.

7. The exchange will determine eligibility for and assist the consumer in enrolling in available programs, such as government-provided premium assistance or Medicaid.

8. Lastly, the exchange will determine exemptions from the individual mandate. 

  • A member of a religious sect that is recognized as conscientiously opposed to accepting any insurance benefits 
  • A member of a recognized health care sharing ministry 
  • A member of a federally recognized Indian tribe 
  • An individual whose household income falls below the minimum threshold for filing a tax return 
  • An individual who experiences a short gap in coverage of less than three consecutive months during the year 
  • An individual who incurs a hardship, as certified by an exchange, which makes him/her unable to obtain coverage 
  • An individual who cannot afford coverage because the premium cost exceeds 8 percent of his/her household income 
  • An individual who is incarcerated  
  • An individual who is not a U.S. citizen or a U. S. national, nor an alien lawfully present in the U.S.  

States were given the opportunity to establish their own marketplaces, and approximately 18 states acted upon that. For the states that chose not establish their own marketplaces, a federally facilitated exchange will be made available in that state. Alternatively, a state can enter into a state/federal partnership. 

More about CBIZ is at www.cbiz.com.

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