ABC’s new strategy manifesto shows the organization expects recent trends in personal health and financial well-being to gain steam in the medium- and long-term, through which individuals and employers are embracing a broader view of lifetime income protection that includes not only health coverage and retirement savings, but also incorporates life insurance, disability and long-term care coverage in a much more integrated way.
The main driver behind the focus on protecting lifetime income through a total financial wellness approach, ABC says, is the fact that people’s lives are getting longer at a time that the pension system in the U.S. continues to cover fewer individuals. Indeed, according to data pulled by ABC from a recent U.S. Centers for Disease Control report, the average time spent in retirement has lengthened from 9.6 years in 1970 to 17.6 years today for men, and from 14 years to 20.6 years for women over that same time period. Meanwhile, individuals retiring today can expect the cost of health care to grow 7% annual through the end of their lifetime (see “Now’s the Time to Help Clients Plan for Health Care Costs”).
In developing a new strategic plan, the Council concluded that, in the future, the three main stakeholders in the benefits system will continue to be individuals, employers and the government, although the roles of each one will evolve. Additionally, ABC says the principal objective of employee benefits policy will continue to be to help individuals achieve “personal financial security,” although that concept is perhaps more accurately now described as “personal health and financial well-being.”
ABC’s new strategy outline also takes into account the growing importance of “global competitiveness” in retirement and health coverage offerings. The global footprint of the largest employers and the increasing globalization of markets and economies mean global competition will dictate much of the design and perceived successes of employee benefit programs by the end of the next decade, ABC says.
Another major consideration for ABC’s strategic vision is that technological advances should be expected to continue their perpetual acceleration. Technologies available today make possible what could not even be imagined just 10 years ago when the ABC’s last strategic vision document was issued, the group says. Consequently, a new strategic plan must accommodate a continual and exciting evolution in technology, rather than simply allowing for what is possible today, ABC says.
ABC warned that the Patient Protection and Affordable Care Act (ACA), along with the Pension Protection Act (PPA) and other laws implemented in the last 10 years, have substantially increased administrative burdens for health and retirement plan sponsors. This is causing employers to confront difficult decisions about their future role as sponsors of benefits, ABC says. Keeping employers in the system—and helping workers meet current and future income needs—will require more flexibility, choice, transparency, simplicity, portability and predictability than presently exists.
ABC says most of the specific policy recommendations made in its new strategic plan will require modifications to the Internal Revenue Code. As the group explains, the tax incentives that support employer-sponsored benefits are often viewed primarily as large “tax expenditures” resulting in foregone revenue to the U.S. Treasury. Taken together, the exclusion from an individual’s income tax of contributions to employer-sponsored health and retirement plans—two of the largest tax expenditures in the federal budget—theoretically represent more than $1.8 trillion in lost revenue over the next five years.
But this perspective exposes the peril of short-term thinking, ABC says, as tax revenue is eventually collected on retirement plan contributions (and any earnings) upon distribution or withdrawal. So the “loss” is largely a matter of timing, ABC explains (see “The Tax Deferral vs. Benefit Debate Goes On”).
Similarly, ABC says incentivizing employers to maintain health coverage reduces the financial consequences to the government of providing direct subsidies to many individuals who would otherwise obtain coverage through the health insurance exchanges/marketplaces established by ACA. Although the tax expenditure for employer-sponsored health coverage is often viewed as regressive because the tax benefit favors higher-income individuals, in fact, the expenditure is quite progressive because the value of the health benefit it provides is more significant for lower-income individuals, for whom it would be a greater financial burden to purchase coverage absent an employer-sponsored plan, ABC says.
ABC suggests that sending this message to policymakers and the general public will be a critical goal for the health and retirement benefits industries in the years ahead. Public policy must avoid the temptation to view the tax expenditure scores associated with benefit plans as a convenient source of revenue for unrelated tax policy changes or other government spending, the group says.
The ABC expects employer engagement may vary in the future as some companies continue a more traditional plan sponsor role, while others choose to facilitate workers’ ability to take more direct ownership of their benefits. Any changes must permit an employer to maintain its responsibilities in the most effective way as determined by that employer, ABC says. Under either scenario, employers must communicate effectively about their benefit programs to align employer and employee expectations. Those entities that provide services to employer-sponsored plans also must help employers fulfill their responsibilities.
Beyond tax policy, the ABC says the federal government must ensure stability in Social Security, Medicare and other public programs, such as health insurance exchanges. This is critical to minimize volatility and cost-shifting to either individuals or employers, the ABC explains. The government also must adopt policies that support traditional plan sponsorship but also give employers and employees the flexibility to meet their respective obligations in innovative and cost-effective ways. Furthermore, the judicial system should be sufficiently informed so its decisions reflect the value of employer-sponsored plans.
ABC members all sponsor directly or provide professional services to retirement, health and deferred compensation plans. Together the organization’s members provide health and retirement benefits to more than 100 million Americans and millions of others internationally.
A full copy of “A 2020 Vision: Flexibility and the Future of Employee Benefits,” including a list of more specific policy recommendations, is available for download here.