Including Long-Term Care Planning in Retirement Planning

Advisers can help clients create a more holistic plan for retirement by becoming familiar with and including strategies to pay for long-term care.

Financial professionals are well-positioned to help individuals prepare for long-term care (LTC) expenses in retirement, HealthView Services says in a white paper, calling it a “decisive step to a truly holistic financial plan and secure retirement.”

Studies show that Americans are concerned about health care costs in retirement. And many mistakenly believe Medicare will pay for all LTC costs.

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HealthView’s analysis reveals that an average, healthy 65-year-old male/female couple has a 75% chance of at least one spouse requiring some form of long-term care if each live to their actuarial life expectancies. “Regardless of the type of care required, those who fail to plan for LTC may face substantial medical bills with few means to pay other than by liquidating assets,” it says.

The white paper says the national average cost of a nursing home in 2021 is $100,913; for assisted living it’s $55,708; and for 44 hours per week of home health care, it’s $56,408. LTC expenditures can vary substantially between states and territories and also between metro areas within state lines. For example, the cost for one year in a nursing home is $61,090 in Oklahoma and $166,242 in Connecticut—a 172% difference.

HealthView says the first step to LTC planning is generating personalized answers to the following questions:

  • At what age may LTC services be needed?
  • What LTC coverage options are available?
  • What is the desired choice of LTC delivery?
  • How long are services typically needed?
  • How do existing health conditions impact when/how long someone will need care?
  • How much will services cost when care is required, including inflation?
  • In which state and metro area will services be required?

Financial professionals can familiarize themselves with a range of solutions that can help clients prepare for LTC while still leaving a legacy to children and other loved ones. The white paper discusses options such as LTC insurance, a life insurance policy, an LTC rider on an insurance product or self-insuring. Clients might need a combination of these strategies.

HealthView Services’ white paper, “Long-Term Care and Financial Planning,” can be downloaded from here.

Participants Challenging Omnicom’s Use of Active TDF Suite See Most Claims Move Forward

A judge left until later the issue of whether passively managed funds and actively managed funds are proper comparators.

A federal judge has moved forward a consolidated lawsuit in which participants in Omnicom’s 401(k) Group Retirement Savings Plan allege plan fiduciaries violated their Employee Retirement Income Security Act (ERISA) fiduciary duties through a prolonged inclusion in the plan of certain funds and excessive recordkeeping fees and expense ratios.

As an initial matter, Judge Colleen McMahon of the U.S. District Court for the Southern District of New York determined that, because the plaintiffs could not have been harmed by any mismanagement of funds in which they did not invest by their own choice, they lack standing to bring allegations related to the plan’s offering of Neuberger Berman and Morgan Stanley funds. She dismissed claims regarding those funds.

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Most of the plaintiffs’ claims, however, concerned the active suite of the Fidelity Freedom target-date funds (TDFs), which was the plan’s qualified default investment alternative (QDIA). The lawsuit alleges that the active suite consistently underperformed the benchmark index suite of the Fidelity Freedom Funds, while charging much higher management fees, resulting in much higher expense ratios than comparable funds. Omnicom continued offering the active suite in the plan until sometime in 2019.

McMahon said she was unconvinced by Omnicom’s arguments that the plaintiffs’ allegations were not sufficient to plead a viable claim. She said Omnicom’s failure to adequately monitor the underperforming active suite, as well as its decision to continue offering it as the plan’s QDIA until 2019, raises an inference of imprudence. In addition, she said, the fact that the active suite underperformed the index suite in four out of six years “suggests that it was not a wise option when less expensive and better performing alternatives were available.”

McMahon also addressed the plaintiffs’ allegations that there were large net outflows from the active suite throughout the duration of the class period.

“Drawing all inferences in the plaintiffs’ favor, these facts admit of an inference that other asset managers felt that the active suite was not a wise investment and made decisions accordingly, while Omnicom either failed to monitor the situation closely enough or ignored the underperformance,” she said in her opinion. “At this stage of the litigation, this is enough to state a claim.”

McMahon pointed out that ERISA does not oblige Omnicom to select the best performing or least expensive funds for the plan’s investment portfolio. “The key is whether Omnicom’s process in making its investment decisions was imprudent,” she said.

Regarding excessive recordkeeping fees for the plan, the plaintiffs’ essential allegation is that, because the Omnicom plan is large, it has a strong bargaining position and should have been able to secure a much lower per-participant fee. McMahon said that whether Omnicom actually would have been able to secure a lower rate—or whether the $34 per-participant fee was reasonable—will be revealed during discovery. “But plaintiffs have alleged that Fidelity … charges a much lower rate to other, more comparable plans, which is enough to get them past this motion to dismiss,” the judge concluded.

McMahon also found the plaintiffs’ allegations that the plan charged excessive investment management fees across the board sufficient to state a claim. Omnicom argued that their allegations were insufficient because they compared expense ratios for passively managed funds to those of actively managed funds, and the two are not comparable. It also argued that the fees were not high because they were justified by their active management. However, McMahon said all plaintiffs need to allege at this stage is that the fees were excessive in comparison to similar funds. She also reiterated a point she made previously in her decision: “Whether passively managed funds and actively managed funds are proper comparators cannot be determined at this stage.”

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