Health Plan Cost In-creases of Nearly 4% Projected For 2020

Health Plan Cost In-creases of Nearly 4% Projected For 2020

Health benefit costs are expected to grow by almost 4% in 2020, according to the early results from a survey of employer-sponsored health plans released by human resources consultancy Mercer on September 19.

Based on responses from 1,511 U.S, employers, the survey projects that the average total health benefits cost per employee will rise by 3.9% in 2020. Researchers observed that while this growth rate continues the trend of low single-digit increases that began in 2012, health benefit costs are still rising faster than overall inflation.

The survey also found that cost-shifting to employees is expected to play a smaller role in 2020 than in recent years, with just 43% of responding employers saying that they intend to raise deductibles or otherwise cut benefits to hold down costs in 2020. Researchers reported that the underlying medical trend, or the amount costs would increase if employers renewed plans without making any changes, has decreased from 8% in 2014 to 5.2% in 2020, which may have eased some of the pressure to make short-term cost reductions.

Researchers also pointed out that in recent years, employers have been adopting strategies for reducing costs via improved health outcomes, such as providing targeted support for specific health conditions and encouraging plan members to use higher-quality providers. For example, 39% of employers with 500 or more employees surveyed in 2019 reported that they provide access to a Center of Excellence (COE) for cardiology, bariatric surgery, cancer, and other complex treatments. Moreover, 16% of these employers said they steer employees to the COE through lower cost-sharing, or even require them to use it.

The survey findings further suggested that in support of providing higher-quality care, employers continue to add technology-enabled programs designed to help members with specific health issues, such as diabetes, insomnia, and infertility. The results showed, for example, that 62% of respondents with 500 or more employees reported offering one or more of these targeted solutions in 2019, compared to 55% in 2018.

In addition, the survey found that access to health benefits information and resources is increasing, as of the employers with 500 or more employees surveyed in 2019, 40% said that all or most of their benefit offerings are accessible to employees on a single, fully-integrated digital platform, most often through a smartphone app; up from 34% surveyed in 2018.

Retirement Savers Value Lifetime Income Guarantees

Retirement Savers Value Lifetime Income Guarantees

As many Americans lack confidence that they will enjoy a financially secure retirement, significant shares say that having a guaranteed lifetime income is one of their top retirement planning goals, the results of a recent survey conducted by financial services provider TIAA indicated.

Published on September 23, TIAA’s “2019 Lifetime Income Survey” includes responses from 901 Americans between the ages of 25 and 73 who completed an online questionnaire in May and June 2019. The aim of the survey was to uncover the factors that contribute to and detract from people’s financial confidence, and to assess their attitudes toward financial products that can guarantee lifetime income.

When asked about their confidence in various financial aspects of retirement, just 35% of respondents expressed a high level of confidence that they will be able to maintain a good standard of living throughout retirement; 31% said they are very confident that they will feel financially secure throughout their life, including in retirement; 28% said they are highly confident they will never run out of money in retirement; and, of the respondents who are still working, 25% indicated they are very confident that they will be able to retire when they want to.

Broken down by generation, the survey results showed that baby boomer respondents expressed far higher levels of confidence in their financial preparation for retirement than younger respondents, with Generation X respondents reporting even lower levels of confidence than millennials. For example, while 53% of baby boomers said they are confident that they will be able to maintain a good standard of living in retirement, just 28% of millennials and 22% of Gen Xers indicated that they feel equally confident.

The survey also asked respondents how concerned they are about certain financial events occurring. The results indicated that the majority of the adults surveyed are worried about a major unexpected expense (54%), a major medical expense (53%), and significant cuts to Social Security and Medicare (53%); and that significant shares are also concerned about a major market decline (45%) and an increase in inflation (41%).

In addition, the findings indicated that of those respondents who participate in an employer-sponsored retirement plan, 69% cited guaranteed income for life as one of their top two goals for their retirement plan, and 45% said that guaranteed income for life is their top goal. Researchers pointed out that the respondents were more likely to rank having a guaranteed lifetime income as one of their top two goals than keeping their savings safe regardless of what happens in the market (56%), earning a competitive rate of return on their savings (46%), or saving a specific amount of money (28%). Among the reasons the respondents cited for valuing an investment product that provides guaranteed lifetime income were that it gives them a feeling of financial security (60%), and that it makes it easier to save for retirement (46%).

When asked to name the factors that most increase their long-term financial confidence, the leading factor cited by respondents was saving regularly (40%), with smaller shares mentioning saving aggressively (21%), understanding how to pay down their debt (20%), receiving a guaranteed lifetime income from a traditional pension plan (18%), and having diversified investments (15%). However, 52% of respondents admitted that they did not save as much as they should have in 2018, including 22% who indicated that they saved a lot less than they should have.

The findings also suggested that while Americans value knowing how much income they will have in retirement, there is still considerable confusion surrounding financial vehicles that guarantee lifetime income. The survey found, for example, that 32% of respondents who indicated that they have an employer-provided retirement plan said they do not know whether their plan offers an investment option that guarantees lifetime income; and that among those who said they think that guaranteed lifetime income is available in their plan, significant shares demonstrated that they incorrectly believe that mutual funds (35%) and target date funds (20%) secure lifetime income.

When questioned about their sources of financial advice, the respondents were most likely to report that they rely on a professional financial advisor (36%), followed by their employer or retirement plan provider (32%), their spouse or partner (29%), and online retirement or income calculators (27%). The survey found that those respondents who indicated that they rely on a financial advisor expressed more confidence in their ability to always be financially secure, never run out of money, and maintain their lifestyle in retirement than those who said they do not.

The Savings of Many Americans Are Not Improving With the Economy

The Savings of Many Americans Are Not Improving With the Economy

While most Americans have seen their ability to cover monthly expenses and bills improve since the financial crisis, many are still struggling to make ends meet and are failing to save for retirement, as key indicators of financial capability are no longer improving in step with the economy, a study published on June 20 by the FINRA Investor Education Foundation warned.

The study, “The State of U.S. Financial Capability,” is based on the results of a nationwide survey conducted every three years. The latest survey data, from 2018, include responses from more than 27,000 U.S. adults. Originally developed in 2009, the survey measures key indicators of financial capability and evaluates how these indicators vary depending on the respondents’ underlying demographic, behavioral, attitudinal, and financial literacy characteristics.

According to researchers, the results of the past four waves of the survey show signs of widening or
ongoing gaps among certain groups on key measures of financial capability. The percentage of survey respondents who reported having no difficulty in covering monthly expenses and bills grew only slightly from 2015 (48%) to 2018 (50%), after increasing sharply between 2009 (36%) and 2015.

The findings further revealed that although Americans’ ability to make ends meet improved between 2009 and 2018, there has not been a corresponding increase in the propensity to save. The 2018 results showed that 41% of respondents reported spending less than their income, 36% said they spend about equal to their income, and 19% said they spend more than their income. Researchers noted that these percentages have remained consistent across all four survey waves.

In addition, the 2018 results indicated that many Americans are stressed about money. More than half (53%) of respondents reported that thinking about their finances makes them anxious, and 44% of respondents said they find discussing their finances stressful. Across age groups, respondents aged 18-34 reported experiencing the highest levels of stress (63%) and anxiety (55%).

Moreover, the 2018 results suggested that Americans are still not saving adequately for retirement, with just 41% saying they have tried to determine what they need to save for retirement, and only 58% of reporting that they have an employer-based or individual retirement account. The 2018 data also point to an ongoing gender gap in retirement saving behavior, with 47% of male respondents, but just 35% of female respondents, indicating they have tried to determine what they need to save for retirement; and 62% of male respondents, compared to 55% of female respondents, saying they have a retirement account. Researchers noted that these gender gaps appear to have expanded slightly since 2009.

Yet the study’s authors emphasized that these gender differences in preparing for retirement pale in comparison to differences by household income: in 2018, only 19% of respondents with an annual income under $25,000 said they have tried to plan for retirement, compared to 62% of respondents with an annual income of $75,000+. Meanwhile, the percentage of respondents who said they are worried about running out of money in retirement declined only slightly between 2015 and 2018, from 56% to 51%.

The 2018 survey also found that 34% of respondents could answer at least four of five basic financial literacy questions on topics such as mortgages, interest rates, inflation, and risk; down from 42% in 2009. Researchers observed that this decline in financial literacy was most pronounced among younger respondents aged 18-34, who have had little exposure to high interest rates or inflation as adults.

U.S. Households Burdened By Debt Find It Hard To Save

U.S. Households Burdened By Debt Find It Hard To Save

As saving for retirement can be challenging, especially while on a tight budget, a study published in July 2019 by the Center for Retirement Research at Boston College (CRR), attempted to answer the question of why so many U.S. workers report that they have little money set aside to absorb financial shocks.

The issue brief, “Why Are So Many Households Unable to Cover a $400 Unexpected Expense?” was written by Anqi Chen, assistant director of savings research at the CRR. Citing data from two recent Federal Reserve surveys, Chen observed that despite the strength of the economic recovery in recent years, 41% of households surveyed in 2017 said they would find it difficult to cover an unexpected expense of just $400. In her study, Chen used these data to analyze the question of why so many households say they are unable to manage a relatively small unexpected expense.

The study cited survey results showing that, as expected, lower-income households were most likely to say they would be unable to pay for an emergency expense of $400, with 72% of respondents earning less than $25,000 a year reporting that they would have trouble covering such an expense. However, the findings also indicated that 34% of households with annual earnings of between $75,000 and $99,999 and 17% of households with annual earnings of $100,000 or more admitted that they would find it hard to pay for a $400 unexpected expense.

Chen pointed out that other survey data show that just 21% of households reported having less than $400 in their checking or savings accounts. She added, however, that another 17% of the households included in this survey said they would have trouble paying for an unexpected $400 expense once they paid their outstanding credit card debt, despite having at least $400 in their bank accounts.

The study looked at several possible explanations for why so many households—and especially middle- and high-income households—appear to be unable to cover a relatively small unexpected expense, including financial literacy, education, and other socioeconomic characteristics. Based on an analysis that included measures for both financial literacy and educational attainment, Chen found that financial literacy scores had little ability to predict whether a household would have trouble covering a $400 unexpected expense, while educational attainment had strong predictive power.

Moreover, the results of a latent class analysis that examined the characteristics of these vulnerable households showed that a subgroup were less advantaged; i.e., they either recently lost their job, had a low income, or had a high school degree or less. However, a second subgroup of households were identified who had relatively high incomes, net worth, and rates of participation in retirement plans, but who also had relatively high mortgage payments, credit card debt, or other loan payments.

“Many of these households may have enough liquid assets to cover a modest emergency expense but they also have mortgages, student loans, and/or other installment loans,” Chen observed. “These loan payments, which constrain their household budgets, could explain why so many middle- and higher-income households do not have precautionary savings.”

Workers’ Financial Well-Being Is Linked To Their Job Performance

Workers’ Financial Well-Being Is Linked To Their Job Performance

There is a significant relationship between the level of financial stress workers experience and their on-the-job performance, according to the findings of a study of employee data published by human resources consultancy Willis Towers Watson on December 27, 2018.

Researchers cited the results of the “2017/2018 Willis Towers Watson Global Benefits Attitude Survey,” which showed a clear relationship between employees’ financial worries and their work performance, engagement levels, and record of absences. Specifically, the survey revealed that employees who were struggling financially lost 41% more work time to absence than peers without financial worries, had lower engagement levels than their peers without financial worries (51% vs. 29%), and were less productive than their peers without financial worries (32% vs. 5%).

To examine the performance gap between employees who are and are not financially stressed in greater detail, the study used a large employer’s records of work quantity and quality for a relatively homogeneous group of 17,587 employees serving in consumer-facing roles. The financial stress level of each employee was categorized as high, medium, or low based on a range of indicators drawn from the administrative records. These indicators include whether the employee was contributing to a 401(k) retirement plan, had taken a loan or a hardship withdrawal from 401(k) plan savings, was subject to active wage garnishment, and had a recent qualified domestic relations order.

The results of this analysis showed that 24% of the employees had high stress levels, 33% were experiencing medium stress levels, and 43% had low stress levels. Additional analysis indicated that middle-aged employees (aged 35-54) were far more likely to be in the high and medium financial stress groups than their younger (aged 18-34) and older (aged 55+) counterparts.

The findings also showed that having more family responsibilities was associated with higher stress levels. For example, researchers noted, 69% of the high-stress group, but just 42% of the low-stress group, had children; and more than a quarter of the high-stress group, but only 10% of the low-stress group, were single household heads.

The relationship between financial stress and time lost to absence was measured by employees’ use of sick days, unpaid leave, and non-pregnancy-related disability leave. The results indicated that for every one absence day taken by the employees with low stress levels, the employees with high stress levels took 1.75 absence days, and the employees with medium stress levels took 1.37 absence days.

The full study sample was then split into two subpopulations according to their job characteristics: field technicians or phone agents. The analysis found a strong association between financial stress and job performance among the field technicians, as the field technicians with high stress levels had significantly worse work performance than their peers with low financial stress. For the phone agents, the pattern of differences was found to be similar, but less pronounced. Researchers pointed out that this variation in the patterns of the phone agents and the field technicians suggests that the impact of financial stress on productivity may differ across occupations.

The study concluded, however, that “the impaired job performance observed in the employees with high financial stress are concerning because of the potential impact on customer satisfaction and customer retention, both key determinants in profitability.”

 

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2019 Liberty Publishing, Inc. All rights reserved.

Americans Continue To Show Inadequate Levels of Financial Literacy

Americans Continue To Show Inadequate Levels of Financial Literacy

A large share of Americans lack the knowledge associated with making sound financial decisions, and financial literacy levels are especially low in the area of comprehending risk, according to the findings of an annual survey conducted by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business.

This second wave of the “P-Fin Index” survey was conducted online in January 2018 with a nationally representative sample of 1,012 U.S. adults aged 18 or older. The results of the survey were presented in a report released on April 4. To compile the index, the researchers asked respondents 28 core questions, with three or four questions devoted to each of the eight areas of functional financial knowledge covered in the survey: earning, consuming, saving, investing, borrowing/managing debt, insuring, comprehending risk, and go-to information sources.

On average, the respondents answered only 50% of the 28 survey questions correctly. While 16% of the respondents demonstrated a relatively high level of personal finance knowledge and understanding by answering more than 75% of the index questions correctly, 21% showed a relatively low level of knowledge by answering 25% or fewer of the questions correctly.

The results further showed that financial literacy is the lowest in the area of comprehending risk, as, on average, just 35% of the questions on risk were answered correctly. According to the report’s authors, this finding is in line with other research identifying risk-related concepts as the most difficult for individuals to grasp, and is consistent with the findings from the 2017 P-Fin Index.

However, the survey also revealed that personal finance knowledge levels were relatively high on the topics of borrowing and debt management: on average, 60% of the questions on those subjects were answered correctly. Researchers speculated that for many individuals, knowledge and understanding of debt-related topics may emerge from confronting accumulated debt across the life cycle, often starting with student loans.

Moreover, the survey showed that financial literacy levels varied across demographic groups. Financial literacy was found to be significantly higher among men than women, as 21% of the male respondents, but just 12% of the female respondents, answered 75% of the survey questions correctly. Older respondents were also shown to have more financial knowledge than younger respondents: 7% of the respondents aged 18-28, but 22% of the respondents aged 60+, answered 75% of the survey questions correctly. Financial knowledge was also found to increase with income, as 30% of the respondents with an annual income of $100,000+, compared with 15% of respondents with an annual income of $50,000-$99,999, answered 75% of the survey questions correctly.

Not surprisingly, financial knowledge was shown to increase with education, with 33% of respondents with a college degree answering 75% of the survey questions correctly, compared to 6% with a high school degree only. However, the results indicated that respondents who reported that they have participated in a financial education class or program answered more of the questions correctly on average than those who had not: 24% of those who had received financial education answered 75% of the survey questions correctly, versus 13% of those who had not.

The survey also looked at how the financial knowledge levels of the respondents correlated with their financial outcomes. The findings indicated that of those respondents who said they certainly or probably could not come up with $2,000 if an unexpected need arose within the next month, 49% answered less than 26% of the survey questions correctly, while just 8% answered 75% of the survey questions correctly. Moreover, of the non-retirees who reported that they have tried to figure out how much they need to save for retirement, only 22% answered less than 26% of the survey questions correctly, while 65% answered 75% of the survey questions correctly.

From Benefit Trends Newsletter, Volume 61, Issue 5

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2018 Liberty Publishing, Inc. All rights reserved.