Awaiting fate of fiduciary rule, plan sponsors turn attention to fee reasonableness

Uncertainty around the fiduciary rule has muddied the waters for retirement plan sponsors and service providers who are still trying to wrap their heads around the role they are expected to play under the regulation. But while plan sponsors await the rule’s fate — which was vacated in a March ruling by the U.S. Court of Appeals for the Fifth Circuit — experts say fee reasonableness should remain a priority.

The fiduciary rule brought fee reasonableness — meaning that while benchmarking your retirement plan against others, your plan's fees should not be too high above the average — top of mind for many employers, says Shelby George, senior vice president, advisor services, at investment firm Manning & Napier. “It is often associated with confusion, both because the DOL never specifically defines what fee reasonableness is, and because it is an area where there has been an enormous amount of ERISA class action lawsuits,” she says. “If you are already accepting fiduciary responsibility, be cognizant that fee reasonableness is a key part of what you are evaluating in your fiduciary capacity.”

[Image Credit: Bloomberg]
[Image Credit: Bloomberg]

Those who don’t accept fiduciary responsibility will still have to keep reasonable compensation in mind because it is a foundational principal that applies throughout the world of financial advice, including the Internal Revenue Service, the Securities and Exchange Commission and the Financial Industry Regulatory Authority.

“Much of our understanding of what is and is not reasonable was shaped by ERISA class action lawsuits and allegations that have been made,” George says. “Those lawsuits were focused not on the fiduciary rule, but fiduciary responsibility to act in the best interest of plan participants. You need to make sure as fiduciaries you are only passing costs on to plan participants that are reasonable in light of the services they are receiving.”

Most tests of whether fees are reasonable don’t look at the value provided in return for the fees being charged, she says. Many assessments will look at market data and will conduct fee benchmarking both for advisory fees and investment management fees. If the fees being charged in a plan are much higher than what others are charging, the fees may not be considered reasonable.

A more subjective test will look at the value of the services being provided for the fee.

“The assessment needs to look at whether the value of the service is commensurate with the fee that is charged. That is very subjective and could be different depending on who is doing the evaluating. There is so much confusion over fee reasonableness,” George says.

Staying the course

In March, the U.S. Court of Appeals for the Fifth Circuit vacated the fiduciary rule. If that decision stands, the fiduciary rule will go away in May and the industry will go back to following the five-part fiduciary test that was used previously. Until the rule is either sent back to the full Fifth Circuit for a rehearing or is reviewed by the Supreme Court, however, the fiduciary rule’s best practices for when someone is considered a fiduciary will remain in effect.

Norma Sharara, a partner in Mercer’s employment practices risk management group in Washington, urges plan sponsors to keep following the rules as they have been. After the Fifth Circuit’s decision, she says, it is uncertain what the Department of Labor will do next.

“The DOL has a couple of choices. One is to do nothing,” Sharara says. “There’s no secret the Trump administration is not a fan of this rule. Some people are wondering why they would challenge what is a good outcome for them politically.”

The DOL could defend the agency’s right to make its own rule, she adds, by asking the Fifth Circuit to rehear the case with a full complement of judges. The Fifth Circuit opinion handed down on March 15 was made by only three Fifth Circuit justices out of 17. If the DOL opts for this course of action, she says, that request has to be filed by April 30. If the DOL doesn’t ask for a full circuit review or ask for an extension, the rule will be officially dead in May.

If the Fifth Circuit denies a rehearing, the DOL must file a petition with the Supreme Court to review the decision within 90 days of the denial.

“We don’t know that until we see what the Labor Department is going to do. The third option is to withdraw the rule. It seems to be what the Trump administration thought it could do when it took office last year,” Sharara says.

In the meantime, “plan sponsors and investment advisers need to stay the course to see what the Labor Department does next. It is a game changer for investment advisers,” she adds.

If the rule is officially killed, the fiduciary rule will go back to where it was since 1975. If that is the case, it is up to plan sponsors to reconnect with all of their plan service providers to make sure they know who is acting as a fiduciary to their retirement plan, she says.

Source: Gladych P. (2 April 2018). "Awaiting fate of fiduciary rule, plan sponsors turn attention to fee reasonableness" [Web Blog Post]. Retrieved from Employee Benefit News.


Financial shocks could disrupt tomorrow’s retirees

While today’s retirees, dependent as they are on Social Security and traditional pensions rather than 401(k)s, are better able to withstand financial shocks, tomorrow’s retirees won’t have it so easy.

They will be more in danger of being forced to downsize or spend down their assets to meet unexpected expenses such as a spike in medical bills or a loss of income through being widowed.

So says a brief from the Center for Retirement Research at Boston College, which investigated the financial fragility of the elderly to see how well they might be able to deal with financial shocks.

The reason the elderly are seen as financially fragile, the brief says, stems from the fact that, “once retired, they have little ability to increase their income compared to working households.”

And with future retirees becoming ever more dependent on their own retirement savings, and receiving less of their retirement income from Social Security and defined benefit plans, those financial shocks will get harder and harder to deal with.

To see how that will play out, the study looked at the share of expenditures a typical elderly household devotes to basic needs. Next, it looked at how well today’s elderly can absorb those aforementioned major financial shocks. And finally, it examined the increased dependence of tomorrow’s elderly on financial assets, whether those assets are sufficient, and how well those assets do at absorbing shocks.

Nearly 80 percent of the spending of a typical elderly household, the report finds, is used to secure five “basic” needs: housing, health care, food, clothing, and transportation. In lower-income households or the homes of single individuals and in households that rent or have a mortgage, those basic needs make up even more of a household’s spending.

And while there are areas in which a household can cut back—such as entertainment, gifts or perhaps cable TV—as well as potential cutbacks on basic needs, typical retirees can’t cut by more than 20 percent “without experiencing hardship.” And among those lower-income and single households, as well as those with rent or mortgages to pay, the margin is even slimmer.

The need for medical care is so important to those who need it, says the report, that the question becomes whether medical expenditures crowd out spending on other basic items.

And while a widow is estimated by federal poverty thresholds to need 79 percent of the couple’s income to maintain her standard of living, other studies indicate that widows get substantially less than that from Social Security and a pension—estimates, depending on the study, range from 62 percent to 55 percent. And that likely does not leave a widow enough to meet basic expenses.

Among current retirees, only 10 percent report having to cut back on necessary food or medications because of lack of money over the past 2 years.

However, retirees tomorrow, if they have failed to save enough to see them through retirement, are likely to experience income declines of from 6 to 21 percent for GenXers—and that’s assuming that GenXers “annuitize most of their savings at an actuarially fair rate…” despite the fact that very few actually annuitize, and cannot get actuarially fair rates even if they do.

And since the brief also finds that the greater dependency of tomorrow’s retirees on whatever they’ve managed to save in 401(k)s means that they’re exposed to new sources of risk—“that households accumulate too little and draw out too little to cushion shocks and that their finances are increasingly exposed to market downturns”—that means that future retirees will be subjected to a reduced cushion between income and fixed expenses.

To compensate, they will need to downsize and cut their fixed expenses. Neither one bodes well for a comfortable retirement.

Read the article.

Source:
Satter M. (1 March 2018). "Financial shocks could disrupt tomorrow’s retirees" [Web Blog Post]. Retrieved from address https://www.benefitspro.com/2018/03/01/financial-shocks-could-disrupt-tomorrows-retirees/


DOL cracks down on efforts to find missing retirement plan participants

In this article from Benefits Pro, the DOL auditors are taking action on missing participants in retirement plans.


The Department of Labor’s auditors are pushing harder on plan sponsors to make better efforts to find missing terminated vested participants in retirement plans. In return, there’s a call for more guidance on just how far sponsors have to go to do so.

According to a report in Pensions & Investments, the matter has become more urgent in the wake of MetLife’s experience. After the company had “lost track” of some 13,500 participants, the DOL entered the picture. The company’s earlier efforts to find those lost participants were deemed unacceptable, and then state and federal inquiries began.

But DOL auditors, according to a letter from the American Benefits Council to Deputy Assistant Secretary of Labor Timothy Hauser last fall requesting formal rulemaking on comprehensive guidance for plan fiduciaries, have been “inconsistent and alarming” in routine examinations.

The report says, “Some auditors said that failure to find a missing participant was a breach of fiduciary duty, or forfeiting funds back into a plan until participants are found is a prohibited transaction, and plan sponsors could be penalized. Auditors also have insisted that sponsors try different search methods every year or reach out to friends and former colleagues of the missing participant or through social media. Some plan sponsors have been told they must do ‘whatever it takes’ to find participants who are missing or not responding to communications.”

Large defined benefit plans are creating the loudest outcry, according to members reaching out to the ERISA Industry Committee in Washington on the issue. “It’s frustrating for them because there is just a lack of guidance on what activities they have to engage in, and how long they have to be engaged in it,” Will Hansen, senior vice president of retirement and compensation policy, is quoted saying in the report.

DOL officials are aware of the lack of guidance. A DOL spokesman says in the report that “the agency places a priority on consistent actions across our compliance assistance and enforcement activities, and will continue to work with plans and plan sponsors to connect retirees and beneficiaries with their pensions.”

Still, given the agency’s focus on employers’ responsibilities, experts say that employers should try to get ahead of the issue, guidance or not. The report cites David Rogers, partner at Winston & Strawn LLP in Washington, saying, “Given the potential penalties involved and the need for a coordinated response, it is a good practice to have a missing participants policy and designated persons within the organization who make regular efforts to keep participant information current.”

In addition, it quotes Norma Sharara, a principal with Mercer’s Washington resource group, saying, “The rational plan sponsor would be well advised to up their game. At least revisit the issue so when someone comes knocking your door, you are prepared. All along you need to be in constant contact with anybody you are holding money for. Somebody has to be responsible and the Labor Department is placing the burden on the shoulders of the employer.”

On March 1, Senators. Elizabeth Warren, D-MA, and Steve Daines, R-MT, reintroduced the Retirement Savings Lost and Found Act, bipartisan legislation that would create a national online lost-and-found for retirement accounts. The bill is supposed to make it easier for participants to find accounts, as well as for employers to connect with former employees. Employers could also invest abandoned accounts in target-date funds more easily, the report said.

Read the article.

Source:
Satter M. (5 March 2018). "DOL cracks down on efforts to find missing retirement plan participants" [Web Blog Post]. Retrieved from address https://www.benefitspro.com/2018/03/05/dol-cracks-down-on-efforts-to-find-missing-retirem/


Eligibility, lack of plans keep millennials from retirement saving

As millennials reach the age to save for retirement, there is a clear lack-of-knowledge in the arena of what plans they need and how to save for them with the continuing costs of their lifestyles. In this article, we take a look at why this is.


Millennials are way behind on retirement savings, but it has nothing to do with self-indulgence or feasts on avocado toast.

Instead, what they actually need are retirement plans, and earlier eligibility to save in them.

A new report from the National Institute of Retirement Security highlights millennials’ precarious retirement futures with the news that only a third are saving for retirement. It’s not because they don’t want to, or are being extravagant, because when the numbers are crunched they actually save at rates equal to or higher than those of their elders—even if not as many of them can do so.

Millennials are getting a raw deal. Not only are traditional defined benefit plans disappearing, with the likelihood that a millennial might actually be able to participate in one, they’re worried that Social Security—which runs way behind the cost of living anyway—will be of even less help to them in the future as an income replacement than it already is for current retirees. Add to that the fact that more than half of millennials are expected to live to age 89 or even older, and they have the added worry of outliving whatever savings they might have managed to stash.

In fact, millennials need to save way more than their elders to stand a chance of having a retirement that honors the meaning of the word. Says the report, “[S]ome experts estimate that millennials will need to make pretax retirement plan contributions of between 15 percent to 22 percent of their pretax salary, which at 22 percent, is more than double the recommendation of previous generations.”

They’re viewed as irresponsible, but 21 percent are already worried about their retirement security, says the report, and while 51 percent of GenXers and boomers contribute to their own retirement plans, just 34.3 percent of millennials participate in an employer’s plan, although 66 percent work for bosses that offer such plans.

In fact, 66.2 percent of millennials have no retirement savings at all. Zip, zilch, zero. And millennial Latinos? A whopping 83 percent have a goose egg, not a nest egg. Latinos have it much worse, incidentally, than any other millennials group, with just 19.1 percent of millennial Latinos and 22.5 percent of Latinas participating in an employer-sponsored plan, compared with 41.4 percent of Asian men and 40.3 percent of millennial white women—who have the highest rates of participation in a retirement plan.

Despite working for an employer who provides workers with a retirement plan, millennials don’t always have a way to save, since said employer may have set barriers in place to prevent participation until an employee has been with the company for at least a year. And millennials are, of course, known as the job-hopping generation—so if they don’t stay in one place they never qualify. Close to half of millennials—40.2 percent—say they’re shut out of retirement plans because of employers’ eligibility requirements, including working a minimum number of hours or having a minimum tenure on the job.

But don’t accuse them of having no desire to participate: when they’re eligible, more than 90 percent do so.

Read the article.

Source:
Satter M. (2 March 2018). "Eligibility, lack of plans keep millennials from retirement saving" [Web Blog Post]. Retrieved from address https://www.benefitspro.com/2018/03/02/eligibility-lack-of-plans-keep-millennials-from-re/


us capitol

3 ways Congress can meaningfully reform 401(k)s

This article from Employee Benefit Advisor's Alexander Assaley drives home three points on improving 401(k)s - (1) improve coverage, (2) update antiquated testing results, and (3) expand limits while maintaining choices. How do you, as an employer, feel about these points?


In both the House and Senate’s tax bills there are no significant changes made to 401(k), 403(b) and IRA retirement accounts — for now. Congress has preserved the majority of tax benefits. However, we are only getting started, and there is still room for improvement. The drafted bills will look different, perhaps significantly so, before getting finalized into law.

Bloomberg/file photo

As our elected officials debate and negotiate tax legislation, I’d like to offer some input and advice on key characteristics and design structures that we should be advocating for with respect to retirement plans, and how advisers and benefits professionals can work to continually improve the private retirement system:

1) Improving coverage. One of the chief complaints from 401(k) critics is that many workers in this country don’t have access to a plan. Various research indicates that somewhere between 50%–65% of employees have access to a 401(k) or 403(b) and the remaining don’t.

This coverage gap primarily extends to part-time and “gig” workers, as well as small businesses with less than 30 employees. Retirement plan advisers and practitioners need to create forward-thinking solutions to provide these employees with access to employer-sponsored and tax qualified retirement plans.

Most of all, we can shrink the coverage gap if we get small businesses to establish plans. Both data and anecdotal evidence find that the biggest drivers for small businesses to create and offer retirement plans are 1) tax benefits to the owners and executives; and 2) simple, easy to use programs with minimal liability. This is where some of the tax policy or other reforms could really help.

2) Updating antiquated testing rules. While we often cite the $18,500 (or $24,500 for those eligible to make catch-up contributions) employee deferral limits for retirement plans in 2018, the practical nature is that a lot of highly compensated employees, HCEs, (including small business owners) are limited to contributing at much lower levels due to various non-discrimination tests.

While the spirit of non-discrimination testing is just — ensuring business owners and executives aren’t structuring their plans to limit or prevent their employees from benefiting, or inequitably benefiting owners and their family members — the current structure significantly dis-incentivizes the small business owner from offering a plan in the first place because they can’t maximize their benefit.

Let me be clear, we are big proponents of matching and profit sharing contributions, and want to see employers help their employees get on track for retirement too; however, the current safe harbor provisions with immediate, or short vesting schedules, along with cumbersome testing requirements, often cause too big of a hurdle for the small business owners to commit and therefore, short changes their employees with no plan at all.

I would love to see tax reform improve safe harbor provisions and/or testing components that might make it easier for business owners and HCEs save up to the limit without concerns of failed testing or hefty safe harbor contributions. Practically speaking, these workers need to save more in order to meet their retirement income needs, since Social Security will make up a small percentage of their income replacement, and the 401(k) is the best place to make it happen.

3) Expanding limits and maintaining choice. Just before Congressional Republicans announced their tax bill, a group of Senate Democrats unveiled a plan which would actually raise limits for 401(k) plans. While our research aligns with many other studies that the vast majority of savers don’t reach the annual limits, we would be in favor of expanding the limits — even if it only allowed for Roth-type contributions above the $18,500 (or $24,500) limits.

Additionally, we think an employee’s ability to select either Roth or pre-tax contributions is critical. While the tax preferential treatment of defined contribution plans is just one component that makes these vehicles so valuable, it has definitely emerged and remained as the “branding tool” that encourages so many workers to get into the plan in the first place.

Source:

Assaley A. (10 November 2017). "3 ways Congress can meaningfully reform 401(k)s" [Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/opinion/3-ways-congress-can-meaningfully-reform-401-k-s

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hand in the sun

10 surprisingly great places to retire in the U.S.

At Saxon, we care about retirement and offering you the best plans. In this article, we take a look at Forbes's list of the top 10 places to retire. Do any of these places sound peaceful to you?


Probably the biggest retirement decision you’ll face (after: Can I ever?) is: Where should I retire? To help, U.S. News has just come out with its first Best Places to Retire in the United States ranking of the 100 largest metropolitan areas. Some of its Top 10 spots will surely surprise you and you may also wonder why certain parts of the country failed to make the cut.

Credit: Shutterstock

“This is a much more comprehensive analysis than we’ve done in the past,” said Emily Brandon, U.S. News senior editor for retirement. “Before, we’ve done themed lists like 10 Places to Retire on Social Security Alone and 10 Retirement Spots With Year-Round Nice Weather.”

How U.S. News Ranked the Best Places to Retire

This time, U.S. News first asked people 45 and older to indicate the “attributes of a retirement destination that are most important to them” and collected responses from 841 of them. “What people told us was most important to them in a place to retire was 'being affordable' but also, they wanted to feel happy there,” said Brandon.

Based on the survey responses, the researchers then assigned weightings in indices of six broad categories — happiness living in particular metro areas; housing affordability for homeowners and renters; health care quality, based on the U.S. News Best Hospitals rankings; retiree taxes (sales and income); the strength of local job markets and what U.S. News calls “Desirability,” which means how strongly Americans said they’re interested in living in a given metro area. After all that number crunching, a Best Places ranking emerged.

The Top 10

The Top 10 best places to retire in America, according to U.S. News:

  1. Sarasota, Fla.
  2. Lancaster, Pa.
  3. San Antonio, Texas
  4. Grand Rapids, Mich.
  5. El Paso, Texas
  6. McAllen, Texas
  7. Daytona Beach, Fla.
  8. Pittsburgh, Pa.
  9. Austin, Texas
  10. Washington, D.C.

“Most of the places scored well on some measures, but not on others,” said Brandon.

That’s a fact. Sarasota had high scores for Happiness, Desirability and Retiree Taxes and decent ones in the other categories. McAllen didn’t fare well in the Job Market category and Washington, D.C. got a low ranking for Housing Affordability. El Paso and Grand Rapids were weak in the Desirability category.

Why Places Scored Well and Didn't

The reason four Texas metro areas made it into the Top 10? “Affordable housing, low taxes and above-average levels of happiness,” said Brandon.

The three winners in the Middle Atlantic states (Lancaster, Pittsburgh and Washington, D.C.) had high rankings because of happy residents and access to high quality health care, Brandon noted.

You may have noticed that the Top 10 largely consists of small- and mid-size cities and no California or New York City-area metros. “I think a lot of that has to do with housing prices,” said Brandon. “Almost no California places scored high in the list largely because housing prices are out of reach for many people with low- or even mid-range incomes.” California home prices are 150% above the U..S. average, overall. The highest-ranked California metro area in the U.S. News list is San Diego, which came in at No. 21.

What About the Weather?

Somewhat strangely, the U.S. News ranking didn’t factor in weather at all.

“We had some discussion about whether to include weather,” said Brandon. “It’s tricky because not everyone has the same preferences when it comes to weather. Some people want four seasons. Some find snowy winters terrible.” The upshot: the rankers left out this variable.

How the U.S. News List Compares With Other Rankings

The U.S. News list is markedly different from other recent Best Places to Retire rankings from Forbes and WalletHub.

The 25 places Forbes chose, after looking at 550 communities, were in big and small cities and skewed toward warm and moderate climates; its top places included Clemson, S.C., Port Charlotte, Fla. and Green Valley, Ariz. None of its 25 were in the U.S. News Top 10.

WalletHub looked at the retiree-friendliness of the 150 largest U.S. cities across 40 metrics and its top picks were mostly large ones. Three cities in Florida topped the list: Orlando, Tampa and Miami. Austin was the only one in both WalletHub’s Top 10 and U.S. News’.

What the Rankings Can't Rank

You won’t want to move to any place in retirement just because it’s on a Best Places list, of course. And no ranking can account for a key retirement location criteria for many people: proximity to family members.

Still, Best Places to Retire rankings can be a useful part of your research as long as you closely read their methodology, so you understand what the raters were rating.

“These types of surveys can be a great starting point in deciding where to retire,” said Brandon. “It all comes down to your personal preferences. Your criteria for what makes a best place to retire may be different than for others.”

 

You can read the original article here.

Source:

Eisenberg R. (2 October 2017). "U.S. News Offers A New Take On The Best Places In The U.S. To Retire" [Web blog post]. Retrieved from address https://www.forbes.com/sites/nextavenue/2017/10/02/u-s-news-offers-a-new-take-on-the-best-places-in-the-u-s-to-retire/#4d26f87c60ec

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Health-Care Cost Expert Kathryn Votava on Buying Long-Term-Care Insurance

Health care can be an expensive matter, especially when seeking long-term solutions. We thought it'd be beneficial to find an article from the perspective of an expert on long-term insurance, enabling those looking into the solution to have a better idea of what they're getting into. From Health.com, here is an interview from Kathryn Votava.

You can read the original article here.


kathryn-votava"The earlier you purchase a policy, the healthier you are and the more likely you are to qualify for insurance."(KATHRYN VOTAVA)

Many people rely on family and friends to provide care for them when they can no longer do it themselves. But at some point, the care required can be too much for these informal networks to handle. That's where long-term-care insurance comes in. Caregiving expenses are usually not covered by health insurance, and they can be staggering—a semi-private room in a nursing home, for instance, can run about $70,000 a year, and in-home care can reach as high as $350,000 for round-the-clock help. We asked Kathryn Votava, PhD, assistant professor of clinical nursing at the University of Rochester in New York and president of Goodcare.com, a company that analyzes health-care costs, for advice on how to shop for the best long-term insurance policy.

Q: What does long-term-care insurance cover?

A: Depending on what kind of policy you choose, it will pay for a nursing home, assisted-living facility, community programs, or for someone to come to your home to care for you. It can offset some of the costs—notice I said some. Most people think that if they have a long-term-care insurance policy, they're covered completely. Not only is the average policy not enough to cover the cost of this type of care, but people don't take health-care inflation into account. And you will still need to pay for your Medicare Part B, Medigap plan, prescription drugs, and doctor visits just as before. Those expenses don't go away and long-term-care insurance doesn't cover them.

Q: How much coverage should I get?

A: The average policy covers $149 a day. Now, if you live in some parts of Texas or Louisiana, that might cover your long-term-care needs. But in a place like New York City, the average is more than twice that. Get an understanding of what the costs are in your area. The two big surveys of nursing-home prices are from Genworth Financial and MetLife Financial. That will give you a ballpark figure, but even those underestimate how much it actually costs. I'd call a good nursing home or home health-care agency that you might like to use eventually. Find out what the daily cost might be, for example $300 a day, and buy the coverage that's closest to that daily cost. When it comes to 24-hour care at home, you will find that a long-term-care insurance benefit will not come close to covering that level of cost, because extensive in-home care is costly. Remember that once you have exceeded two to four hours a day, seven days per week of in-home care, you will probably be paying more for long-term-care than if you were in a nursing home. Therefore, if you need more than two to four hours per day of in-home care, your long-term insurance benefit may provide more long-term-care if you are in a nursing home.

Q: How long should my coverage last?

A: You can purchase a policy that pays a set dollar amount per day for either some period of time or as a continuous lifetime benefit. I advise people that the most economical choice is to purchase a plan that provides benefits for five years. Only about 20% of people stay in a nursing home for five years or more. That's the minimum coverage you should have. If you have more money to spend, then certainly buy coverage for a longer time period or a bigger benefit so that if you're certain that you want in-home care, you will have more money to pay for it. Take the money you'll save on the shorter coverage period and buy a shorter waiting period, benefit for home care (as many policies pay out only 50 cents on the dollar for long-term-care at home), and compound-inflation protection riders. Don't give up coverage on the front end for something you are much less likely to collect on the back end. Once you have the minimum coverage, if you have more money to spend, then you can buy coverage for a longer time period.

Q: What additional features are worth paying for?

A: Get a compounded inflation rider. A "simple" inflation rider does not keep up with inflation nearly as well. One basic problem is that health-care inflation runs at 8.1% a year; the maximum inflation protection you can usually get in a long-term-care insurance policy is 5%—thats the best you can do. While that 5% rate will not keep up entirely with health-care inflation, it will give you a better chance of being able to afford your long-term-care when the policy pays out. I also like to see people have a 30-day waiting period or less—thats the amount of time from when the insurance company determines that a person is eligible to use their long-term-care benefit to when the company begins to actually pay out for the benefit. All policies have some waiting period. People often get a 90-day or a 100-day waiting period because it lowers their premium, but you could end up paying thousands of dollars during the time you're waiting for coverage to start. Finally, I recommend a nonforfeiture-of-benefit rider. Typically, you're only eligible for the insurance benefits as long as you pay your premium. But the nonforfeiture rider lets you maintain some value in a policy even if you decide not to continue paying for it. That could be very important if the insurance company you're with decides to go out of this business and sells your policy to someone else who jacks up your premium so much you can't afford it anymore. The non-forfeiture rider means you will get some amount of the policy benefit—not all, but some—depending what you paid in over time. One last thing: Make sure the insurance company you choose has a solid track record. Call the National Association of Insurance Commissioners at (866)-470-6246 and get the phone number for your state health-insurance department. Then contact your state insurance department to find out if there are any reported problems with an insurance company you are considering.

Q: When should you buy the insurance?

A: At the latest, I'd say late 40s or early 50s. It's still affordable then. The premium is based on your heath status first, then your age. Generally speaking, the earlier you purchase a policy, the healthier you are and the more likely you are to qualify for insurance. People who have serious, chronic conditions may find their rates to be really high or they may even be uninsurable. The costs vary greatly from policy to policy, state to state, and person to person. Usually someone in his or her late 40s or early 50s will pay about $3,000 to $6,000 a year. That's for a very good policy. Someone in his 60s could pay several thousand dollars a year more for the same policy.

Q: When does the coverage start?

A: In order for the policy to kick in, you must have a certain level of need. Most providers define that as not being able to perform at least two of what are called "activities of daily living," in insurance-speak. Those are: bathing, eating, dressing, toileting, and transferring from bed to chair. So, you might have a hard time giving yourself a bath, and it might take you all day to do and then you're completely exhausted, but to the insurance company you're not compromised enough to use the insurance for that. The exception to that rule is folks with dementia. They may be able to perform those tasks, but they need supervision, so the insurance company will often pay out for their care.

Q: Can you run into problems collecting your insurance?

A: It's gotten better. Some of the companies that were the most difficult to deal with were on shaky financial ground, and they've gone out of business. Remember, the person who comes to do the assessment of whether you're able to perform the activities of daily living works for the insurance company, not for you. They'll be looking at your case through that lens. If you run into trouble getting them to pay benefits, you might want to enlist an advocate, like a geriatric care manager, if more than a simple follow-up phone call is necessary.


You can read the original article here.

Source:

Polyak I. (25 January 2011). "Health-Care Cost Expert Kathryn Votava on Buying Long-Term-Care Insurance" [Web blog post]. Retrieved from address http://www.health.com/health/article/0,,20456208,00.html


Despite Boost In Social Security, Rising Medicare Part B Costs Leave Seniors In Bind

 

How are the rising costs of Medicare Part B affecting Seniors? Don't be left in the dark. Find out more in this article.


Millions of seniors will soon be notified that Medicare premiums for physicians’ services are rising and likely to consume most of the cost-of-living adjustment they’ll receive next year from Social Security.

Higher 2018 premiums for Medicare Part B will hit older adults who’ve been shielded from significant cost increases for several years, including large numbers of low-income individuals who struggle to make ends meet.

“In effect, this means that increases in Social Security benefits will be minimal, for a third year, for many people, putting them in a bind,” said Mary Johnson, Social Security and Medicare policy consultant at the Senior Citizens League. In a new study, her organization estimates that seniors have lost one-third of their buying power since 2000 as Social Security cost-of-living adjustments have flattened and health care and housing costs have soared.

Another, much smaller group of high-income older adults will also face higher Medicare Part B premiums next year because of changes enacted in 2015 federal legislation.

Here’s a look at what’s going on and who’s affected:

The Basics

Medicare Part B is insurance that covers physicians’ services, outpatient care in hospitals and other settings, durable medical equipment such as wheelchairs or oxygen machines, laboratory tests, and some home health care services, among other items. Coverage is optional, but 91 percent of Medicare enrollees — including millions of people with serious disabilities — sign up for the program. (Those who don’t sign up are responsible for charges for these services on their own.)

Premiums, which change annually, represent about 25 percent of Medicare Part B’s expected per-beneficiary program spending. The government pays the remainder.

In fiscal 2017, federal spending for Medicare Part B came to $193 billion. From 2017 to 2024, Part B premiums are projected to rise an average 5.4 percent each year, faster than other parts of Medicare.

‘Hold Harmless’ Provisions

To protect seniors living on fixed incomes, a “hold harmless” provision in federal law prohibits Medicare from raising Part B premiums if doing so would end up reducing an individual’s Social Security benefits.

This provision applies to about 70 percent of people enrolled in Part B. Included are seniors who’ve been enrolled in Medicare for most of the past year and whose Part B premiums are automatically deducted from their Social Security checks.

Excluded are seniors who are newly enrolled in Medicare or those dually enrolled in Medicaid or enrolled in Medicare Savings Programs. (Under this circumstance, Medicaid, a joint federal-state program, pays Part B premiums.) Also excluded are older adults with high incomes who pay more for Part B because of Income-Related Monthly Adjustments (see more on this below).

Recent Experience

Since there was no cost-of-living adjustment for Social Security in 2016, Part B monthly premiums didn’t go up that year for seniors covered by hold harmless provisions. Instead, premiums for this group remained flat at $104.90 — where they’ve been for the previous three years.

Last year, Social Security gave recipients a tiny 0.3 percent cost-of-living increase. As a result, average 2017 Part B month premiums rose slightly, to $109, for seniors in the hold harmless group. The 2017 monthly premium average, paid by those who weren’t in this group and who therefore pay full freight, was $134.

Current Situation

Social Security is due to announce cost-of-living adjustments for 2018 in mid-October. Based on the best information available, it appears to be considering an adjustment of about 2.2 percent, according to Juliette Cubanski, associate director of the program on Medicare policy at the Kaiser Family Foundation. (Kaiser Health News is another, independent program of the Kaiser Family Foundation.)

Apply a 2.2 percent adjustment to the average $1,360 monthly check received by Social Security recipients and they’d get an extra $29.92 in monthly payments.

For their part, the board of trustees of Medicare have indicated that Part B monthly premiums are likely to remain stable at about $134 a month next year. (Actual premium amounts should be disclosed by the Centers for Medicare & Medicaid Services within the next four to six weeks.)

Medicare has the right to impose that charge, so long as the amount that seniors receive from Social Security isn’t reduced in the process. So, the program is expected to ask older adults who paid $109 this year to pay $134 for Part B coverage next year — an increase of $25 a month.

Subtract that extra $25 charge for Part B premiums from seniors’ average $29.92 monthly Social Security increase and all that be left would be an extra $4.92 each month for expenses such as food, housing, medication and transportation.

“Many seniors are going to be disappointed,” said Lisa Swirsky, a policy adviser at the National Committee to Preserve Social Security and Medicare.

Higher Income Brackets

Under the principle that those who have more can afford to pay more, Part B premium surcharges for higher-income Medicare beneficiaries have been in place since 2007. These Income-Related Monthly Adjustment Amounts (IMRAA) surcharges vary, depending on the income bracket that individuals and married couples are in. Nearly 3 million Medicare members paid the surcharges in 2015.

For the past decade this is how surcharges have worked:

Bracket One: Individuals with incomes of $85,001 to $107,000 were charged 35 percent of Part B per-beneficiary costs, resulting in 2017 premiums of $187.50.

Bracket Two: Incomes of $107,001 to $160,000 were charged 50 percent, resulting in 2017 premiums of $267.90.

Bracket Three: Incomes of $160,001 to $214,000 were charged 65 percent, resulting in 2017 premiums of $348.30

Bracket Four: Incomes of more than $214,000 were charged 80 percent, resulting in 2017 premiums of $428.60.

(Information for married couples who file jointly can be found here.)

Now, under legislation passed in 2015, brackets two, three and four are adopting lower income thresholds, a move that could raise premiums for hundreds of thousands of seniors. Bracket two will now consist of individuals with incomes of $107,001 to $133,500; bracket three will consist of individuals making $133,501 to 160,000; and bracket four will include individuals making more than $160,000. (Thresholds for couples have been altered as well.)

As John Grobe, president of Federal Career Experts, a consulting firm, noted in a blog post, this change “will add another layer of complexity” to higher-income individuals’ decisions regarding “electing Part B.”

 

You can read the original article here.

Source:

Graham J. (5 October 2017). "Despite Boost In Social Security, Rising Medicare Part B Costs Leave Seniors In Bind" [web blog post]. Retrieved from address https://khn.org/news/despite-boost-in-social-security-rising-medicare-part-b-costs-leave-seniors-in-bind/


Long-Term Disability Insurance Gets Little Attention But Can Pay Off Big Time

Is disability coverage worth it? At Saxon, we love to keep you updated on the latest news in the retirement world, and today, we want to dive into disability coverage. Check out this engaging and helpful article we pulled from KHN.


“It won’t happen to me.” Maybe that sentiment explains consumers’ attitude toward long-term disability insurance, which pays a portion of your income if you are unable to work.

Sixty-five percent of respondents surveyed this year by LIMRA, an association of financial services and insurance companies, said that most people need disability insurance. But the figure shrank to 48 percent when people were asked if they believe they personally need it. The proportion shriveled to 20 percent when people were asked if they actually have disability insurance.

As the annual benefits enrollment season gets underway at many companies, disability coverage may be one option worth your attention.

Some employers may be asking you to pay a bigger share or even the full cost. That can have a hidden advantage later, if you use the policy. Or you may find that your employer has automatically enrolled you — or plans to — unless you opt out. A growing number of employers are going that route to boost coverage that they feel is in their employees’ best interests, not to mention their own, since insurers usually require a minimum level of employee participation in order to offer a plan.

Benefits consultants agree that although long-term disability coverage lacks the novelty appeal of some other benefits that companies are offering these days — hello, pet insurance — it can prove much more valuable in the long run.

“This is a really critical safety-net benefit,” said Rich Fuerstenberg, a senior partner at human resources consultant Mercer.

If you become disabled because of accident, injury or illness, long-term disability insurance typically pays 50 to 60 percent of your income, while you’re unable to work. The length of time the policy pays varies; some policies pay until you reach age 65.

Long-term disability generally has a waiting period of three or six months before benefits kick in. That period would be covered by short-term disability insurance, if you have it.

Many long-term disability claims are for chronic problems such as cancer and musculoskeletal conditions. According to the Council for Disability Awareness, the average duration of a claim is nearly three years — 34.6 months.

Not everyone has savings to support them through that time. When the Federal Reserve Board surveyed adults about household economics in 2015, 53 percent said they don’t have a rainy day fund that could cover them even for three months. More troubling, nearly half of respondents — 46 percent — said that faced with a hypothetical $400 emergency expense, they didn’t have the cash to cover it.

According to the Social Security Administration, 1 in 4 people who are 20 years old now will be disabled before they reach age 67.

Overall, 41 percent of employers offer long-term disability insurance, according to LIMRA, though the proportion of larger employers who offer it is generally much higher. Compared with health insurance, premiums cost a pittance — $256 annually in 2016 on average for group plans, LIMRA says. Many employers pick up the whole tab or charge workers a small amount.

However, as employers continue to shift benefit costs onto employee shoulders, long-term disability is no exception. Increasingly, they’re offering the coverage as a “voluntary” benefit, meaning employees pay the entire premium.

The upside is that if employees pay for the coverage themselves with after-tax dollars and they ever become disabled and need to use the coverage, the benefits will be tax-free.

“If an employee can choose to pay for coverage on a post-tax basis, or is paying on a voluntary basis, it’s better for them,” said Jackie Reinberg, national practice leader for absence, disability management and life at benefits consultant Willis Towers Watson.

Some employers may pay for a core basic benefit that replaces 40 or 50 percent of income and offer workers the opportunity to “buy up” to more generous income replacement of 60 or 70 percent.

Although voluntary coverage has a tax advantage, disability consultants are concerned that leaving it up to employees, especially if they’re choosing among several other voluntary coverage options like cancer insurance, critical illness coverage and yes, pet insurance, increases the odds they’ll skip buying long-term disability coverage.

“These coverages all feel the same, and if you’re going to choose one at all you tend to go with the one that’s cheapest and the one that you think you might use,” said Carol Harnett, president of the Council for Disability Awareness, a membership group of disability insurers that does education and outreach about disability issues.

Auto-enrollment can make a big difference. Employers that auto-enroll employees in voluntary long-term disability plans may get 75 percent of employees to participate, compared with 30 percent for employers that leave it completely up to workers, said Mike Simonds, CEO of disability insurer Unum US.

If you were offered long-term disability coverage when you were hired and didn’t sign up, it may be tougher to do so during the open enrollment period, said Fuerstenberg. A growing number of health plans require employees to show “evidence of insurability,” meaning they must answer a series of health-related questions before they’re approved. Some long-term disability policies may also have preexisting condition provisions that won’t pay benefits for a condition for up to a year, for example.

 

You can read the original article here.

Source:

Andrews M. (10 October 2017). "Long-Term Disability Insurance Gets Little Attention But Can Pay Off Big Time" [web blog post]. Retrieved from address https://khn.org/news/long-term-disability-insurance-gets-little-attention-but-can-pay-off-big-time/


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15 Most Expensive States for Long-Term Care: 2017

Are you reaching retirement? Then, perhaps, you've already looked into the affordability of long-term care, and - well - it's not as affordable as you thought. If you're looking to get the most out of your retirement budget, then you may want to stray away from these 15 most expensive states for long-term care, as of 2017.

This article is brought to you by Think Advisor, and it was written by Marlene Y. Satter. You can read the full article here.


Genworth’s annual study on the cost of care nationwide, which includes home care, assisted living facilities, etc., is not reassuring

The price of long-term care insurance is high—for everyone involved. Not just the patient but also the caregivers pay in more than money to make sure that the person in need of care is given the best care they can manage.

In this year’s version of Genworth Financial’s annual study on the cost of care nationwide—not just in nursing homes, which are less and less on the forefront, but also care provided at home, adult day care and assisted living facilities—the news is not reassuring. Costs have risen steadily, with those for licensed homemakers—those who provide what the study calls “hands-on personal care” for patients still in their homes—rising the fastest, increasing 6.17% just since last year.

And of course since people would prefer to stay in their homes, that’s going to hit a lot of people hard.

Less-skilled “homemaker care,” such as cooking, cleaning and running errands (not included in the breakdown that follows) has risen pretty quickly as well, increasing by 4.75% since last year. But both versions of homemaker assistance are at the low end on the price scale, coming in at $21 for homemaker care and $22 for licensed homemaker care. The big bucks are elsewhere.

They may not have risen as quickly percentage-wise as the two already mentioned, but adult day care increased by 2.94% since last year to a national median rate of $70 per day. Assisted living facilities now average a median monthly rate of $3,750, an increase of 3.36% from last year, while nursing homes, at an increase of 5.50% for a private room, now run a median daily rate of $267. No matter how you look at it, that’s a lot of money.

And caregivers often sacrifice their own financial well-being to care for their family members, forking over an average of $10,000 out of their own pockets for expenses that range from household expenses, personal items, or transportation services to payment of informal caregivers or LTC facilities.

A whopping 62% are paying for these expenses out of their own retirement funds; 45% have seen those costs cut their basic quality of living; and 38% have cut the amount they devote to savings and retirement to meet the costs of care.

And another sad side effect of all this stress is that 27% say it’s had a negative impact on their relationship with the person they’re caring for.

The penalty for all this devotion is that absences, reduced hours and chronic tardiness can end up cutting a caregiver’s pay. About a half of caregivers estimate that they lost approximately a third of their income.

Check out the 15 most expensive states for LTC.

Seven Foot Knoll Lighthouse at the Inner Harbor in Baltimore.

15. Maryland

Average Annual LTC Cost: $60,305

  • Adult day care: $2,150
  • Licensed home care: $52,281
  • Assisted living: $49,800
  • Nursing home (private room): $118,990

Prospect Terrace Park in Providence.

14. Rhode Island

Average Annual LTC Cost: $60,789

  • Adult day care: $19,500
  • Licensed home care: $57,772
  • Assisted living: $61,860
  • Nursing home (private room): $104,025

Hollywood Blvd in Los Angeles.

13. California

Average Annual LTC Cost: $61,239

  • Adult day care: $20,020
  • Licensed home care: $57,200
  • Assisted living: $51,300
  • Nursing home (private room): $116,435

Seattle Sea Seahawks Fans (Photo: AP)

12. Washington

Average Annual LTC Cost: $61,704

  • Adult day care: $16,900
  • Licensed home care: $60,632
  • Assisted living: $55,920
  • Nursing home (private room): $113,362

Skier on the slopes at a Killington Resort. (Photo: AP)

11. Vermont

Average Annual LTC Cost: $63,139

  • Adult day care: $34,320
  • Licensed home care: $57,200
  • Assisted living: $49,527
  • Nursing home (private room): $111,508

State Capitol in Bismarck. (Photo: AP)

10. North Dakota

Average Annual LTC Cost: $64,010

  • Adult day care: $25,480
  • Licensed home care: $63,972
  • Assisted living: $36,219
  • Nursing home (private room): $130,367

Lobster boats in Portland.

9. Maine

Average Annual LTC Cost: $64,423

  • Adult day care: $28,080
  • Licensed home care: $53,768
  • Assisted living: $58,680
  • Nursing home (private room): $117,165

Times Square, New York City.

8. New York

Average Annual LTC Cost: $65,852

  • Adult day care: $20,800
  • Licensed home care: $54,340
  • Assisted living: $47,850
  • Nursing home (private room): $140,416

The Corbin Covered Bridge in Newport, New Hampshire. (Photo: AP)

7. New Hampshire

Average Annual LTC Cost: $66,044

  • Adult day care: $18,720
  • Licensed home care: $60,357
  • Assisted living: $58,260
  • Nursing home (private room): $126,838

Old Capitol building in Dover.

6. Delaware

Average Annual LTC Cost: $68,472

  • Adult day care: $18,850
  • Licensed home care: $50,908
  • Assisted living: $72,180
  • Nursing home (private room): $131,948

Atlantic City Beach.

5. New Jersey

Average Annual LTC Cost: $68,833

  • Adult day care: $23,400
  • Licensed home care: $52,624
  • Assisted living: $69,732
  • Nursing home (private room): $129,575

Waikiki shoreline in Honolulu.

4. Hawaii

Average Annual LTC Cost: $71,820

  • Adult day care: $18,200
  • Licensed home care: $59,488
  • Assisted living: $51,000
  • Nursing home (private room): $158,593

A statue of the Spirit of Victory in Bushnell Park in Hartford. (Photo: AP)

3. Connecticut

Average Annual LTC Cost: $72,671

  • Adult day care: $20,800
  • Licensed home care: $52,624
  • Assisted living: $55,200
  • Nursing home (private room): $162,060

Beacon Hill in Boston.

2. Massachusetts

Average Annual LTC Cost: $73,307

  • Adult day care: $16,900
  • Licensed home care: $59,488
  • Assisted living: $67,188
  • Nursing home (private room): $149,650

Crabbers on the fishing grounds in southeast Alaska. (Photo: AP)

1. Alaska

Average Annual LTC Cost: $117,800

  • Adult day care: $43,709
  • Licensed home care: $63,492
  • Assisted living: $72,000
  • Nursing home (private room): $292,000

You can read the full article here.

Source:

Satter M. (2 October 2017). "15 Most Expensive States for Long-Term Care: 2017" [Web Blog Post]. Retrieved from address http://www.thinkadvisor.com/2017/10/02/15-most-expensive-states-for-long-term-care-2017