View Points April 21, 2014

The Need for Long-Term Care Insurance

When I was a youngster many years ago, my mother taught me to look both ways before crossing the street. I was precocious and told my mother that on a one-way street, I only had to look one way.
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My mother told me that I could not always be sure the street was one way and that traffic might just come from another direction. She simply said: “You have too much to lose if you are wrong.”

In my role as a financial adviser to almost 10,000 participants across the country, I have begun to think that too many advisers and participants are only looking one way. Focused on retirement, savings and returns,   both advisers and participants are worried about having enough money so they won’t outlive their savings.

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I want all my participants to reach a comfortable retirement, and most are on the right track. Unfortunately, very few are prepared for a serious health issue in retirement.  My mother had a long-term health problem called Parkinson’s and it impacted the entire family. It impacted my father’s business career, his retirement and his retirement savings. It impacted the children as we became care givers in order to offset the cost of long-term care. It was a game changer for my father and his retirement savings.

Today the statistics are pretty simple:  1 in 2 people will be affected by long-term care costs 1. Most men who need long-term care are taken care of by their wives; so the long-term care costs are offset until she needs care.

The costs of long-term care can be between $50,000 to $100,000 per year2. If the average retiree has to incur that cost over a long period of time, it will take a huge bite out of their retirement savings.

Medicare won’t cover long-term care services3. Medicaid won’t pay unless you have spent most of your life’s savings.  The amount of countable assets you can have and still qualify for Medicaid varies state to state. In most states you can retain $2,0004. So the answer is simple: if you think that you are set for retirement look both ways and purchase some long-term care insurance instead of relying solely on your 401(k)/retirement assets to cover your long-term care needs.

I have been introducing long term care insurance to my plan sponsors. It is a benefit that the company can provide as a tax deductible benefit and they can offer it to their employees as something the employees can purchase at a discount. Discounts for employer-sponsored plans are available to employees, spouses and extended family members5.  If a group meets certain criteria, it may be eligible for simplified health underwriting.6. The premium can be paid through a Health Savings Account which is pre-tax dollars7.

I have seen plans where senior management has a fully funded plan, junior management has a reduced plan, hourly employees get an offset to the cost and new employees pay all their plan cost—and every combination in between. Long-term care is not a qualified benefit where everyone gets the same thing. 

Obviously, Uncle Sam does not want everyone in a nursing home on Title 19 Medicaid, and Uncle Sam has reduced the rules so that long-term care insurance is more attractive.

Take a look at long-term care employer-sponsored plans and show them to your plan sponsors.  We are here to help everyone work toward a successful and dignified retirement. We are here to help the families of all of our participants and teach them to look both ways before crossing the street into retirement.

If you need some help finding a worksite long-term care provider, call or email me. I am interested in helping your participants plan for a successful retirement too.

 

 

Sources:

1)        Longtermcare.gov

2)        Longtermcaresource.org

3)        Medicare.gov

4)        Longtermcare.gov

5)        Aaltci.org

6)        Aaltci.org

7)        Longtermcareinsurancefacts.com

 

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. In addition, the following disclaimer will be included in all articles: Any opinions of the author(s) do not necessarily reflect the stance of Asset International or its affiliates.

Compliance April 18, 2014

State Street Cleared of Wrongdoing in GM Stock Drop Suit

For the second time, a U.S. district court has found State Street Bank and Trust did not violate its duties to General Motors (GM) retirement plan participants in its decisions about holding company stock.
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The U.S. District Court for the Eastern District of Michigan used the presumption of prudence precedent adopted by most courts and found participants did not allege facts sufficient to overcome this presumption. The participants argued there were various dates on which State Street should have acted to divest the retirement plan’s holdings in GM stock prior to the time it actually did, but in each instance, the court found State Street had presented evidence in support of its stance.

According to the court opinion, on August 1, 2008, GM announced a third quarter 2008 net loss of $15.5 billion. Analysts projected that GM was on track to run out of cash by the first quarter of 2009. In its November 10, 2008, Form 10-Q filing for the third quarter of 2008, GM acknowledged that its auditors had “substantial doubt” regarding GM’s “ability to continue as a going concern.” In a November 2, 2008, notice to participants and beneficiaries, State Street temporarily suspended the purchases of the GM Common Stock Fund until further notice, noting that “it is not appropriate at this time to allow additional investments by participants.” It was not until March 31, 2009, that State Street decided to divest the GM stock held in the fund, with the process completed by April 24, 2009.

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U.S. District Judge Denise Page Hood previously dismissed the lawsuit, finding that since participants could allocate their investments among a range of investment options, and since they knew GM was in financial trouble but continued to invest in GM stock, State Street cannot be held liable for the participants’ investment choices (see “State Street Stock Drop Suit Gets Tossed”). However, on appeal, the 6th U.S. Circuit Court of Appeals, held that the participants pleaded sufficient facts to make plausible their claim of a causal link between State Street’s conduct and the losses to the plan and that State Street cannot escape its duty simply by asserting at the pleadings stage that the plaintiffs (i.e., participants) themselves caused the losses to the plans by choosing to invest in the GM stock fund.

The plaintiffs in the case assert it was imprudent for State Street to continue to hold GM stock in the plans as of July 15, 2008, when GM’s then-CEO announced GM intended to implement a comprehensive restructuring plan in response to second quarter 2008 losses which he described as “significant,” and to stem “an impending liquidity crisis at GM.” The 6th Circuit noted that the plaintiffs need not ultimately prove that July 15, 2008, was the actual date on which it was no longer reasonable to continue holding GM stock, only that the “imprudent date” for investment in GM stock occurred prior to March 15, 2009.

Hood noted in her latest opinion, a fiduciary may breach its duties to plan beneficiaries by failing to investigate and evaluate the merits of its investment decisions. The presumption of prudence is not rebutted if the defendant shows evidence that the stock fluctuated during a certain period and that several investment advisers recommended holding the stock. A fiduciary breaches its duty if it fails to impartially investigate the options by obtaining the impartial guidance of a disinterested outside adviser to the plan, apart from fiduciaries who also double as directors of the corporation.

For each date the participants argued would have been a more prudent time to divest the GM stock, Hood found State Street provided evidence it investigated, considered the guidance of disinterested advisers and/or showed several advisers recommended holding the stock.

In its defense, State Street argued that the notion that the Employee Retirement Income Security Act (ERISA) requires an employee stock ownership plan (ESOP) fiduciary to liquidate company stock holdings based on a company’s financial difficulties has been soundly rejected in comparable stock drop cases, citing DiFelice v. U.S. Airways, Inc.

In addition, State Street said it discharged its fiduciary responsibilities through a three-tier decision making process, and noted that courts who have reviewed its process have concluded it satisfies ERISA’s requirements, and that State Street fulfilled all of its obligations and understood its fiduciary duties, citing In re Delphi Corp. (see “Delphi Fiduciary Breach Suits Dismissed Against State Street”).

“Although Plaintiffs make light of State Street’s ‘procedural process’ in reviewing the status of GM stock, the evidence submitted, including the number of meetings the Independent Fiduciary Committee held during the Class Period shows that State Street was prudent and deliberate in its decisionmaking,” Hood concluded.

In December 2012, the U.S. Supreme Court declined to review the State Street case regarding GM stock (see “GM Participants Can Move Forward with State Street Suit”). However, the high court has since taken on another case concerning the presumption of prudence, and many of the same points made in Hood’s recent decision were discussed in the arguments before the Supreme Court (see “High Court Ponders ‘Conflicts’ for ESOP Fiduciaries”).

The recent decision in Pfeil v. State Street Bank and Trust Company is here.

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