Data & Research April 10, 2014

Employers Cite ACA Impact on Retirement Plans

A new analysis from the LIMRA Secure Retirement Institute suggests more than four in 10 employers believe the Patient Protection and Affordable Care Act (or ACA) has directly impacted their retirement plan.
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The research shows around 43% of employers report the ACA has affected their current retirement benefits strategy and spending, and 45% believe the ACA will change their retirement plans in the future. Of those who believe the ACA has already changed their retirement benefits strategy, a majority (55%) say they are spending less money and time on retirement benefits and shifting costs to employees to compensate for increased health plan expenses.

The report also shows the complexity of ACA compliance efforts has led about 42% of employers that offer workplace retirement savings programs to spend less time evaluating their retirement benefits.

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“Employers have limited resources to use to manage their employees’ comprehensive benefits package,” explains Alison Salka, corporate vice president and director of LIMRA Secure Retirement Institute (SRI) research. “The added complexity and costs of health care are definitely taking a toll on employers’ ability to manage their retirement savings plans. As a result, employers are looking for more support from the industry to help them provide a comprehensive retirement savings program for their employees.”

LIMRA finds cost-shifting was more prevalent among employers that offer both a defined benefit (DB) plan and defined contribution (DC) plan, underscoring the point that employers have limited staff resources to manage benefits programs. In fact, employers that sponsor both DC and DB plans report a direct impact from the ACA 67% of the time, compared with 48% for those sponsoring just one type of retirement plan.

Of those employers who think the ACA will affect their retirement plan strategies and spending in the future, 63% believe it will mean less money spent on retirement plans.

“For many American workers, their employer-sponsored retirement plan is the primary way they save for retirement,” Salka explains. “Our findings about the impact of the ACA underscore the opportunity for plan providers and advisers to help employers better manage the challenges associated with their retirement plans.”

Salka points to previous LIMRA SRI research that shows access to a retirement savings plan at work has a significant positive impact on a worker's ability to systematically save for retirement. The research shows that among employees with defined contribution (DC) plan access through their current employer, 95% have at least some household retirement savings versus 73% of those with no DC plan access. Previous LIMRA SRI research also finds workers with access to an employer-sponsored retirement savings plan are more likely to feel confident that they will be able to achieve the retirement lifestyle they desire compared with those who do not have access (43% vs. 34%).

More information is available at www.secureretirementinstitute.com.

The Markets April 10, 2014

Mortality Tables to Drive Down Pension Buyout Cost

The estimated cost, as a percentage of accounting liability, of a U.S. retiree annuity purchase decreased during February from 108.5% to 108.4%, according to Mercer.
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The Mercer Global Pension Buyout Index notes that the Society of Actuaries released a new draft mortality table predicting longer life expectancy than those currently used to determine a plan’s accounting liability. Mercer says this change is expected to cause a larger increase in accounting liabilities than insurer pricing, causing a decrease in buyout premiums.

The index is designed to allow for the monitoring of pension annuity transactions pricing in the United States, as well as the UK, Ireland and Canada. Mercer uses up-to-date pricing information from each of the countries to estimate the cost of insuring a sample plan’s current retirees as a percentage of the equivalent estimated accounting liability in each country.

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For the UK, the index finds that that estimated cost of a pension annuity transaction as a percentage of accounting liability was 1% lower in February than in January. For a plan with pensioner liabilities of £100 million, the relative cost of a pension annuity transaction versus accounting liability would have been around £1 million lower in February than in January.

With Ireland, the index finds the estimated cost of a pension annuity transaction (on a traditional annuity basis), as a percentage of accounting liability, increased by 1% to 117% at the end of February. The underlying accounting cost remained virtually unchanged and so the increase was driven by increases in the cost of purchasing bulk annuities.

As for Canada, the index finds the estimated cost of a pension annuity transaction, as a percentage of accounting liability, was approximately 0.2% lower in February than in January. For each $100 million of pensioner liabilities settled, the relative cost of a pension annuity transaction versus accounting liability would have been around $0.2 million lower.

The latest Mercer Global Pension Buyout Index may be downloaded from here.

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