|
|
Federal
E-News  |
April 2007
IRS Issues Final 415 Regs; NCTR’s Concerns with COLAs are Addressed, but Multiple Annuity Starting Dates Issues are Yet to be Resolved At long last, the Internal Revenue Service (IRS) has published final regulations under section 415 of the Internal Revenue Code (IRC). The new regulations reflect concerns raised by NCTR regarding the testing of COLA increases, but the IRS decided to defer addressing problems with their proposed treatment of multiple annuity starting dates until a new draft can be developed later this year. On April 4, 2007, the IRS issued its long-awaited final regulations updating the rules governing the application of section 415 of the IRC. Section 415 provides a series of limits on benefits under qualified defined benefit plans and on contributions and other additions under qualified defined contribution plans. The new regulations, originally proposed in May of 2005, represent the first comprehensive revisiting of the rules since they were first issued in 1981. NCTR had raised concerns with a number of the proposed regulations’ provisions in testimony before an IRS hearing in 2005 presented by Dave Stella, Deputy Secretary of the Wisconsin Department of Employee Trust Funds and Co-chairman of the NCTR Legislative Committee. Mr. Stella’s testimony also represented the views of the National Association of State Retirement Administrators (NASRA) and the National Conference of Public Employee Retirement Systems (NCPERS). Specifically, NCTR objected to the requirement that plans actuarially convert a fixed percentage COLA into a straight life annuity, which would then be subsequently added to the annuity benefit tested under the applicable dollar limit in effect at the time of commencement of the benefit. As Mr. Stella pointed out in his statement, NCTR does not believe that a participant’s benefit, otherwise within the applicable dollar limit, should be limited at the time the participant’s benefit commences merely because the participant is or may be entitled to receive COLA increases in the future, when undoubtedly the applicable dollar limits will have risen and the participant’s benefit at that time -- even with the COLA increase – will be under the applicable dollar limit as adjusted. “We believe Congress well understood the need for plans to provide protection against the ravages of inflation and intended an increase in benefits would only be tested at the time the increase is implemented,” Mr. Stella stressed. The new regulations respond to these comments by providing that, in the case of annuity forms of benefits that are increased automatically each year pursuant to plan terms, no such actuarial adjustments at commencement of the benefit need be made so long as the form of benefit is not subject to the requirements of section 417(e)(3) and the plan provides that the amount payable in any limitation year cannot be greater than the section 415(b) limit applicable at the annuity starting date, as increased in subsequent years pursuant to section 415(d). NCTR also questioned the proposed regulations dealing with multiple annuity starting dates, which would apply to any number of situations in which a participant’s annuity benefit, previously determined to be under the applicable 415(b) limitations at the time of commencement, might be increased – such as through a COLA increase, a legislated benefit improvement for retired participants (including an ad hoc COLA to restore the purchasing power of benefits), additional accruals resulting from a return to service following retirement, and change in the form of benefit following divorce or death of spouse. Under the original IRS proposal, instead of merely testing the benefit as increased under the applicable limit at the time of the increase, a plan would be required, among other things, to take into account the value of benefits previously paid, even though the participant’s benefit had passed muster under the applicable 415(b) limits at the time of retirement. As the NCTR testimony noted, this would have the “perverse effect” of depriving retirees who have already received benefits under the plan from receiving the full benefit of any increase even if the benefit as increased is under the applicable limitations at the time the increase takes effect. “Indeed,” Mr. Stella pointed out, “under the proposal, the older the retiree is and the more benefits the retiree has received, the less likely it will be the retiree can receive any increase in benefits.” According to the IRS, “numerous” concerns were raised regarding these rules. Based on these comments, the IRS and the Treasury Department have decided that revisions are needed before these rules are adopted in final form. Accordingly, the new regulations reserve a place for such rules, which the IRS hopes to publish for comment by the end of 2007. NCTR had also identified problems with the manner in which the proposed regulations calculate the increase in the section 415(b) dollar limitation in those cases in which a participant’s benefit payments do not commence until after age 65. Specifically, since most public employee retirement systems do not increase a participant’s benefit for a delay in payment – unlike private sector plans, which are required to actuarially increase benefits for their participants where payment does not commence by age 65 – the calculation effectively precludes many governmental defined benefit plans from increasing the dollar limitation in such cases. NCTR had argued that participants who continue to work after age 65 and continue to accrue benefits should not be constrained by the dollar limit at age 65 but should be subject to a higher dollar limit which takes into account the fact their benefits will eventually commence at an age later than age 65. However, the final rules make no change in this calculation. The IRS and the Treasury Department believe “it is not appropriate” to increase the dollar limitation for commencement after age 65 where, under the plan terms, there is no increase to the participant’s benefit on account of delayed commencement (so that any increase in a participant’s benefit is solely on account of additional service or compensation). The new section 415 regulations generally apply to limitation years
beginning on or after July 1, 2007. However, in the case of governmental
plans, the application of a number of the new regulations may be delayed
until limitation years that begin more than 90 days after the close
of the first regular legislative session of the legislative body with
authority to amend the plan that begins on or after July 1, 2007. New
415 Regulations During Senate consideration of the Iraq supplemental spending legislation, an amendment authorizing the creation of so-called “Roth” 457 plans was approved. The legislation, which must now be reconciled with its House-passed counterpart, faces a promised veto by President Bush, who opposes restrictions on his ability as Commander-in-Chief to conduct the war as he sees fit. It is unclear, following this impending political face-off between the Executive and Legislative branches, whether another supplemental bill, stripped of its so-called “pork” provisions, will advance – and if so, what will become of this new pension proposal. On March 29, 2007, during debate on H.R. 1591, the “U.S. Troop Readiness, Veterans' Health, and Iraq Accountability Act of 2007,” AKA the Emergency Supplemental bill, an amendment was offered by Senator Ron Wyden (D-OR) to restore funding for the Secure Rural Schools and Community Self Determination Act, commonly known as the county payments law. In order to help offset the costs of the amendment, Senator Wyden included a provision authorizing 457(b) plans to offer participants the ability to make so-called “Roth” contributions. Named after former Senator William V. Roth Jr. (R-DE), a champion of the concept, Roth contributions are made with after-tax dollars (i.e., they are taxed as income in the year they are made) but the investment earnings on such contributions are generally tax-free when withdrawn in retirement. Because they are viewed as attracting dollars into a taxable setting that might otherwise be put into a traditional savings vehicle (and thus have taxes on them deferred), Roth contributions are viewed by Congressional budget scorers as a revenue source. For example, the Roth 457 amendment is estimated to raise $1 billion over 10 years. Currently, participants in 401(k) and 403(b) plans are permitted to make Roth contributions. Many view the Roth 457 plan as an important new tool for those public employees without access to either of the former supplemental savings vehicles, and the National Association of Government Defined Contribution Administrators (NAGDCA) is on record in support of such a change in law. Senator Chuck Grassley, the Ranking Republican on the Senate Finance Committee, also spoke favorably of the Roth option for 457 plans during consideration of the amendment, and it passed by a vote of 75 to 22. However, despite the popularity of the rural schools program – and the lack of any apparent opposition to the Roth 457 provision -- it is unclear whether any final Emergency Supplemental bill that the President eventually signs will include such extraneous provisions. Perhaps the most notable aspect of the action on this pension provision was its appearance during debate on a totally unrelated subject as a “pay-for” to satisfy the new Congressional Democratic majority’s commitment to the PAYGO approach to legislation. Under PAYGO, all new measures that have a Federal budget “cost” must be paid for with either offsetting new taxes or spending cuts/savings. This underscores the danger of other potential revenue raisers, such as the repeal of the employer pick-up, being used to plug revenue shortfalls in connection with virtually any legislation that requires spending offsets. Wyden Amendment (see page 55 for Roth 457) Hedge Fund Hearings Begin in House; Fed Chief Weighs in on Debate The House Financial Services Committee has held its first hearing designed to examine the emerging role of hedge funds and private equity pools in the U.S. and global markets. While concerns continue to be expressed by members of Congress with the potential exposure of pension funds to hedge fund losses, the Chairman of the Federal Reserve Board recently expressed his views that the "relatively light" Federal oversight of the hedge fund industry has been working well. His comments reinforce the recent recommendations by the Bush Administration’s Working Group on Financial Markets against imposing new hedge fund rules. As promised, on March 13, 2007, the House Financial Services Committee held its first of what are expected to be a series of hearings on the hedge fund industry. Witnesses included hedge funds and their representatives as well as investor representatives and academicians. In addition to discussing the role of hedge funds in the markets, and the level of risk associated with them, several witnesses offered their views on what an appropriate governmental role in the regulation of this quickly-growing segment of the market should look like. Generally speaking, hedge funds were praised for the important role that they play in the market, echoing Treasury Secretary Henry Paulson’s observation that hedge funds have “made our capital markets more efficient, facilitating the dispersion of risk.” Furthermore, most of the witnesses agreed with the recent report of the President’s Working Group on Financial Markets, which expressed concern that heavy-handed Federal regulation would be counterproductive. As Kenneth Brody, the co-founder of Taconic Capital, put it, “Regulation of hedge funds with the intention of reducing systemic risk would do little to improve stability in capital markets and would run the risk of actually increasing instability by reducing the benefits that hedge funds contribute to markets.” (Taconic Capital is registered with the SEC as an investment adviser and manages seven hedge funds, totaling approximately $5 billion under management.) While endorsing the Working Group’s recommendation that market discipline, not increased regulation, was the most effective way in which to addresses systemic risks posed by hedge funds, several witnesses nevertheless made suggestions with regard to possible additional measures that could be taken. For example, Taconic’s Brody said that mandatory registration of hedge fund managers as investment advisers with the SEC would promote self-policing and internal discipline, and that it would be appropriate for Congress to consider legislation that addressed last year’s court ruling that blocked the SEC’s efforts in this regard. However, Andrew Golden, President of the Princeton University Investment Company (known as “PRINCO”), a University office with responsibility for investing Princeton’s $14.2 billion Endowment, warned that requiring SEC registration “would be a feel-good measure that would offer little incremental protection and would risk diverting limited oversight resources.” Noting that Princeton feels compelled to perform the same exacting due diligence on registered advisors as they do on unregistered ones, Golden said he feared that SEC registration would be “misinterpreted as a stamp of approval, akin to a UL seal,” and that mandated registration “will actually lead to more confusion as to the inherent risk of a hedge fund.” Jim Chanos, Chairman of the Coalition of Private Investment Companies (“CPIC”), a coalition of hedge funds with an aggregate of over $60 billion in assets under management, took a somewhat different approach. He suggested that it may be appropriate for the SEC to examine the extent to which investors in private investment pools are not protected by Federal or state requirements and whether the industry cannot, on its own, adopt best practices in critical areas. The SEC could then consider whether it should exercise its rulemaking authority and apply certain base-level requirements to advisers of funds who may “fall between the cracks.” The need for more transparency was the chief concern of Stephen Brown, David S. Loeb Professor of Finance with New York University’s Stern School of Business. He said that the industry interprets the current law’s general solicitation ban (required in order to avoid triggering registration) as limiting all kinds of public disclosure, with some viewing lack of transparency “as part of their business model.” Brown believes it is this lack of information, this lack of transparency at an industry level, that is of greatest concern, and thinks perhaps Congress needs to revisit the ‘40 Act to mandate certain levels of disclosure. “There is no need to know proprietary trading information,” he says. “However, by being more forthcoming, the industry could allay public concern about systemic risk and operational risk.” Pension plan investing in hedge funds continues to be of bi-partisan concern to many in the Congress, and this was also discussed at the hearing. Congressman Mike Castle (R-DE), in his opening remarks, talked about workers, retirees, and other average investors unknowingly being exposed to hedge fund losses, and said that increased transparency was necessary. He pointed out that while the President's Working Group recommended that investors in hedge funds gather necessary information regarding the fund's "strategies, terms, conditions and risk management" to make informed investment decisions and perform due diligence, hedge funds are not legally required to disclose this information. “I am concerned,” he said, “with this lack of transparency, because the manager of a pension fund cannot fulfill their fiduciary duty and may not understand the risk of their investments to perform due diligence before committing funds.” Princeton’s Golden saw it a little differently. He believes that a sophisticated investor should have the ability to decide whether or not he or she has sufficient information to prudently make decisions regarding initial and continuing investment in a particular fund. “I do not believe that sophisticated investors who willingly invest in any thing, hedge fund or otherwise, without satisfying themselves that they have adequate information deserve any sympathy, let alone additional regulatory safeguards,” he told the Committee. However, he did acknowledge concerns that unsophisticated individuals may be getting exposure to hedge funds through their pension funds. While he agreed that the “average Joe or Jane” is clearly not qualified to assess a hedge fund investment, he observed that “presumably there is some professional management of the pension fund who should be sophisticated enough to ask and answer the key question: ‘Do I understand what I am investing in?’” Nevertheless, if Congress is concerned that this is not adequate protection, then Golden suggested that perhaps ERISA should be amended to restrict pension plans to investing only with registered advisors. In the alternative, the PBGC could base premiums in part on the extent to which a pension fund has investments with unregistered advisors. “These would be less invasive measures than requiring all hedge funds to register,” Golden said. However, he thinks both of these approaches “are flawed and would likely have unintended consequences.” “I offer them,” he concluded, “only as potentially ‘less bad’ alternatives.” While Congress continues to ponder what to do about hedge funds, Ben Bernanke, Chairman of the Federal Reserve Board, has recently weighed in on the subject. Speaking at the New York University Law School on April 11, 2007, Bernanke observed that regulatory oversight of hedge funds is “relatively light” and that this light regulatory touch “seems largely justified” since hedge funds deal with highly sophisticated counterparties and investors, and because they have no claims on what he referred to as “the Federal safety net.” With regard to small investors’ indirect exposure to hedge funds through their pension plans, the Fed Chair noted that “managers of pension funds and similar institutions generally have a fiduciary duty to their investors to research and understand their investments and to ensure that their overall risk profile is appropriate for their clientele.” Furthermore, “most pension funds have only a small exposure to hedge funds,” he added. Bernanke concluded that “the market-based approach to the regulation of hedge funds seems to have worked well,” but he also believes that “many improvements can still be made.” What those will “improvements” will look like, and whether they will be voluntary, market-based changes or legislative and regulatory responses, remain to be seen. In any case, as Bernanke points out, “market discipline does not prevent hedge funds from taking risks, suffering losses, or even failing -- nor should it. If hedge funds did not take risks, their social benefits -- the provision of market liquidity, improved risk-sharing, and support for financial and economic innovation, among others--would largely disappear.” House
Financial Services Hearing Executive Comp Legislation Clears Committee; House Floor Action Likely Soon
On March 28, 2007, the House Financial Services Committee approved H.R. 1257, the “Shareholder Vote on Executive Compensation Act.” The legislation, authored by the Committee’s Chairman, Barney Frank (D-MA), would require that, beginning in 2009, public companies include in their annual proxy to investors the opportunity to vote on the company’s executive pay plans. The vote would be a non-binding up-or-down vote, and would not provide shareholders with the ability to set any limits on executive compensation. There is no requirement that a company take any action as a result of such a vote. The legislation also contains a separate advisory vote if a company gives a new, not yet disclosed, “golden parachute” while simultaneously negotiating to buy or sell a company. A golden parachute is the popular term used to describe a provision in the employment contract of a CEO or other executive officers of a corporation that provides for a severance package should the executive lose his or her job as the result of a corporate takeover. The package is typically very attractive – hence the term “golden” – and can include cash, equity, stock options and other benefits. According to Chairman Frank, “Excessive executive pay has been proven to have a significant impact on company’s profits and shareholder returns, and now the owners of the company will be given a voice on executive compensation plans.” While sharing the Chairman’s concerns with lavish executive compensation packages for CEOs who have underperformed, the Financial Services Committee’s ranking Republican, Spencer Bachus (R-AL), nevertheless opposed the legislation as unnecessary, given the Securities and Exchange Commission’s disclosure requirements for executive compensation and what the top GOP Committee member described as “free market forces” already at work to correct any excesses in the system. He said the Committee should give such actions more time to work “before it seeks to impose a legislative ‘fix’ that could, like past efforts in this area, have unintended consequences.” The nation’s largest teacher pension plan, the California State Teachers Retirement System (CalSTRS), wrote in support of the legislation as a “responsible, balanced approach.” Jack Ehnes, CalSTRS CEO, told Chairman Frank that the bill “removes the need for shareholders to begin a foot-soldier campaign, submitting resolutions to one company at a time, experiencing delays on the issue because of possible director fears of being a first mover or any kind of outlier against their peer board members.” H.R. 1257 was approved by the Committee on a largely party-line vote; only two Republicans -- Paul Gillmor (R-OH) and Walter Jones (R-NC) – voted with all of the Democrats on the Committee to send the bill to the full House. Floor action on the measure could come shortly after the House returns from its Easter recess on April 16th. H.R.
1257 Mark-Up House Panel Hears from Public Purchasers of Healthcare on Need for Biogenerics Legislation
On March 26, 2007, the House Committee on Oversight and Government Reform heard testimony from a variety of witnesses, including the California Public Employees’ Retirement System (CalPERS), the largest public purchaser of healthcare in the country (excluding the Federal government), about the need for a generic approval process for biopharmaceuticals comparable to the system currently used for other, generally chemically-based drugs. In addition to being one of the fastest growing components of the pharmaceutical industry, biotech is also one of the most expensive, and a new biogeneric process could potentially save billions in prescription drug costs. (See January 2007 NCTR Federal E-news) Priya Mathur, CalPERS Board Member and Vice Chair of its Health Benefits Committee, presented a public purchaser perspective. CalPERS' health program covers 1.2 million active and retired state and local government public employees and their family members, and spends about $5 billion on health benefits annually – about $13.4 million per day. Of that amount, CalPERS spends over $1 billion on prescription drugs. According to Ms. Mathur, CalPERS has enjoyed tremendous success in controlling prescription drug costs through the use of generics. “Without generic substitution, we estimate that our costs would be about 60 percent higher,” she told the Committee. CalPERS spending for specialty drugs (of which biotech products make up the great majority) was $83.7 million in 2006, up from $67.4 million in 2004. Spending on these prescriptions increased by 16.9 percent in 2005, compared to a 5.4 percent increase in traditional prescription drugs. On average, spending for biotech products was at least $55 per day - compared to traditional drugs at only $2 per day. Access to biogenerics is therefore critically important. “Without the ability to access less expensive comparable and interchangeable biopharmaceuticals,” according to the CalPERS Board member, “CalPERS ultimately will be forced to increase prescription drug co-pays or increase premiums, shifting the increasingly unaffordable costs onto the individuals who can least afford them.” Despite strong support from other purchasers, both public and private, for a biogenic process, opponents say that the new biotech medicines are too complex to be copied effectively or with enough clarity to establish that two compounds are therapeutically equal. Food and Drug Administration (FDA) Deputy Commissioner Janet Woodcock also testified, and expressed concern with distinct problems in the biologic area compared to more established drug forms. Current yardsticks for sameness and comparability will not usually work, she said. But other witnesses, including smaller biotech firms, testified that scientific concerns over the mechanics of proving similarity between biologic products were exaggerated. Congressman Henry Waxman (D-CA), the Chairman of the Oversight and Government Reform Committee, has re-introduced legislation that would establish a process through which the FDA will be able to approve lower cost copies of biotech drugs. H.R. 1038, the “Access to Life-Saving Medicine Act,” has been referred to the House Energy and Commerce Committee, on which Mr. Waxman also sits as a senior member. In the Senate, a companion measure, S. 623, has also been introduced by Senators Charles Schumer (D-NY) and Hillary Rodham Clinton (D-NY) and has been referred to the Senate Health, Education, Labor and Pensions (HELP) Committee, where a hearing on the subject was held on March 8, 2007. The push to enact a biogenerics bill is increasing. For example, AARP, along with Consumers Union, Aetna, the Blue Cross and Blue Shield Association, Caterpillar, General Motors, Kaiser Permanente, and others, have formed a coalition to support passage. But the brand-name pharmaceutical industry is pushing back hard. In addition, the biotech industry has a substantial presence in Massachusetts, home of HELP Committee Chairman Edward Kennedy (D-MA). Recent reports also suggest that Senator Clinton’s Presidential ambitions may be further complicating efforts to obtain GOP support for a measure that, if approved, could be a major focus of her campaign. Clearly, much serious negotiations will be required before this major healthcare legislation can become law. Health IT Losing Steam, May Fall Off Congressional Healthcare Agenda
Health policy experts from all points of the political spectrum and virtually all participants in the sprawling health care system support the goal of promoting the improved use of information technology in health administration, popularly know as health IT. Estimates suggest that broad use of interoperable electronic health records could save as much as $140 billion annually in health care costs, as well as improve the quality of care. Proponents of health IT were therefore somewhat caught off-guard at the recent annual Health Information Technology Summit in Washington, DC, held in late March, when Congressional aides from both sides of the aisle agreed that last year's health IT legislation will probably not return for consideration by legislators in the current Congress. In 2006, both the House and the Senate passed their own versions of such legislation, but were unable to reach agreement over a compromise package prior to adjournment of the 109th Congress. Sticking points included funding for providers as well as privacy protections. However, the general consensus seemed to be that the legislation would be quickly taken up in the new Congress and a final version hammered out in short order. But it is looking like heath IT’s time may have come and gone, and that the relatively popular legislation will have to wait its turn until after Congress grapples with other more complicated healthcare challenges, such as the reauthorization and expansion of the State Children's Health Insurance Program (SCHIP). Many view the SCHIP legislation as the first step towards universal coverage, so it should prove to be a difficult, time-consuming measure to deal with. Change in Medicare reimbursement to physicians is another item that has moved up on many lists. In short, as one Republican aide is reported to have remarked, health IT is simply “not a must-do piece of legislation." This does not mean that the legislation will never resurface. Polls
continue to show improved health information technology as popular with
the general public, and studies indicate that it can not only save money,
but also lives. However, if it is to compete with other items on the
healthcare agenda of the 110th Congress, proponents of health IT will
need to redouble their efforts. GFOA Sparks Controversy with Recommendation
that GASB be Shut Down GFOA believes that GASB is moving beyond the traditional boundaries of accounting and financial reporting and is “actively seek[ing] creative new outlets for its standard-setting energies.” In short, GFOA is concerned that GASB, particularly in recent years, is trying to “find an accounting solution to every financial problem.” GASB, after more than 20 years’ work, has basically finished the job it was originally created to accomplish, and GFOA’s Executive Board has therefore concluded that “GASB’s time has now come and gone, and that some other vehicle would better meet the authentic need of state and local governments for accounting standards.” This alternative, GFOA argues, is FASB, which currently sets standards for both businesses and not-for-profit entities. GFOA essentially believes that FASB is so busy setting accounting standards for all the many different types of these entities and dealing with demands for practical guidance from various quarters that it won’t have the time to engage in what GFOA refers to as “supply-driven” standard setting, which is what it feels GASB, concerned solely with a single type of entity (i.e., state and local governments), has had the luxury of doing. Using FASB would also do away with any “unnecessary differences” in accounting standards between the public and the private sectors, GFOA insists. For example, is it really necessary for derivatives to be accounted for differently in the public sector? Finally, GFOA believes that the Governmental Accounting Standards Advisory Council (GASAC) has not been successful at carving out a strong and active role for itself in advising GASB on its agenda. This has left GASB essentially unaccountable to anyone, according to GFOA. GFOA says that it does not plan to go ahead unilaterally in regard to GASB, and wants to work closely with major public interest groups, as well as with other organizations that have an interest in the quality of state and local government accounting and financial reporting. However, it did not apparently consult with these other organizations before posting its decision on its website. Some believe that the GFOA action was taken in an effort to placate state and local financial officers who are not happy with implementing the requirements of GASB’s accounting standard 45, mandating the disclosure of post-retirement health-care benefits (OPEB). For example, the Texas comptroller, Susan Combs, has said that GASB 45 should not apply to her state. She argues that since Texas does not have a defined benefit health plan requiring the Lone Star state to fund benefits that have been promised, but instead appropriates an amount to fund health benefits every two years, Texas therefore “can have no long-term liability for Other Post Employment Benefits and reporting any such liability is inaccurate." However, GFOA says that its beef with GASB has nothing to do with OPEB disclosures, which the association supported. Instead, the immediate trigger has been GASB’s insistence on proceeding with performance measurement reporting (which the GASB refers to as “service efforts and accomplishments reporting” – SEA), the latest in what GFOA refers to as “a seemingly endless list of projects that appears destined more to complicate financial reporting than to provide additional information of real value to decision makers.” As Jeff Esser, GFOA’s executive director, has been reported as saying, “A bunch of green eyeshades at GASB are trying to move the thoughtful strategic planning and budgeting process away from budgeting and put it in with accounting." GASB has responded by calling the GFOA “misguided and misinformed” with a different agenda than that which is conveyed on the GFOA website. GASB Chairman Robert Attmore has been quoted as saying “I don’t think they enjoy dealing with an independent standards-setter.” GASB is also receiving support from some of the major public sector interest groups with whom the GFOA intends to consult. For example, the National Association of State Auditors, Controllers and Treasurers (NASACT) has confirmed its support of GASB, and Robert J. O’Neill, the executive director of the International City/County Management Association, reportedly has said that “I don’t think we’re ready to go to the position where GFOA is.” The NCTR Executive Committee has also recently voted to support GASB.
EBRI Survey Finds Americans Worried, Unprepared for Retirement The new 2007 Retirement Confidence Survey, conducted by the Employee Benefit Research Institute (EBRI) and Matthew Greenwald & Associates Inc., reports that recent pension plan terminations and other changes have left nearly half of U.S. workers less confident about the benefits they will receive from traditional pension plans, but doing little to prepare for the impact of such changes on their retirement security. Many workers also misunderstand their true situation regarding healthcare coverage in retirement. The latest EBRI “Retirement Confidence Survey” finds American workers may be slow to recognize how the U.S. retirement system is changing. However, even those who are aware of these changes may not be adapting to them in ways that are likely to secure them a comfortable retirement. Many workers are essentially in denial about much of their retirement future, based on the results of this 17th annual survey. The EBRI report discloses that some workers “appear to be expecting to rely on employer-provided benefits they are unlikely to receive.” For example, up to 20 percent of workers are counting on getting retirement income from a defined benefit pension plan from a future employer. As EBRI points out, this is a scenario that is becoming increasingly unlikely as companies cut back on their defined benefit offerings. When it comes to retirement healthcare, workers are also deluding themselves. Even though many employers are eliminating health care coverage for future retirees, 4 in 10 workers continue to expect they will have access to employer-provided health insurance when they retire. Furthermore, one-quarter of workers and more than one-third of retirees report they have long-term care insurance (separate from health insurance, Medicare, and Medicaid) to help pay for care they might need in a nursing home, assisted living facility, or at home. However, only 10 percent of Americans age 65 and older are estimated to have had private long-term care insurance in 2002, suggesting that many are counting on coverage they do not actually have. Even when workers have personally experienced an actual reduction in the retirement benefits offered by their (or their spouse’s) employer within the past two years, few say they have taken significant steps to improve their retirement security in the face of these reductions. Other findings include the following:
New CRS Report on Health Care Spending and the Aging of the Population A new report prepared by the Congressional Research Service (CRS) examines the impact of an increasingly aging population on growth in healthcare spending. Not surprisingly, the report finds that over the next several decades, both national and Federal spending on health care are expected to grow rapidly. However, while health spending will increase in part as a result of these demographic changes, the report concludes that a more important reason is the rising cost of health care for all age groups. The number of people age 65 and over grew from about 12 million in 1950 to 35 million in 2000, and is expected to approach 87 million in 2050. Since people tend to use more health care as they age, there has been concern that an aging population will accelerate growth in health care spending, and that such growth will lead to economic and fiscal crisis. A new CRS report examines this expected growth in healthcare costs, and finds that while healthcare spending for older people is higher for all types of services, aging is actually a minor factor in expected health care spending growth. “Population aging and higher per capita spending for older people contribute to growth in national spending for personal health care, but aging is not the dominant factor,” the report concludes. Indeed, it suggests that population aging is itself a relatively minor factor in the growth of national spending for health care. “Other factors, including rising per capita income, the availability of new health care products and services, health insurance coverage, and characteristics of the health care system, play a much bigger role,” according to CRS. The CRS is the public policy research arm of the Congress, housed within the Library of Congress. Created in order for Congress to have its own source of nonpartisan, objective analysis and research on all legislative issues, CRS works exclusively and directly for Members of Congress, their Committees and staff on a confidential, nonpartisan basis. CRS Report: Health Care Spending and the Aging of the Population Everything You Always Wanted to Know About Healthcare Reform Proposals, but were Afraid to Ask Just in time for the Presidential campaigns, a new report by the Lewin Group analyzes and compares leading Congressional bills and Administration proposals to expand health insurance coverage introduced over the last two years. If you want to know what they mean when they start talking about Congressman Pete Stark’s AmeriCare proposal or Senator Ron Wyden’s Healthy Americans Act, start reading! The Commonwealth Fund has commissioned The Lewin Group to estimate the effect of the leading 2005-2007 Congressional healthcare bills and Bush Administration proposals on stakeholder and health system costs and the projected number of people who would become newly insured through them. These proposals are divided into three categories: those that propose fundamental reform of the health insurance system; those that would expand existing public insurance programs; and those that seek to strengthen employer-based health insurance. The first of a two-part series, the new report considers whether the proposals would improve access to care, increase health system efficiency, make the system more equitable, and improve quality of care. |
| 7600
Greenhaven Drive, Suite 302 Sacramento, CA 95831 • 916-394-2075
•
916-392-0295 (Fax) |
| Last Update: April 16, 2007 |
