Are You Ready For The New 401(k) MEP/PEP?

Are You Ready For The New 401(k) MEP/PEP?

Source: Forbes, by Chris Carosa

On January 1, 2021, the 401(k) world as you know it will be reborn. It may start out slowly at first, but ultimately the popular retirement savings vehicle will change.

And you should be happy.

It’s very possible, if not likely, the new and improved “401(k) 2.0” will allow you to benefit from broader opportunities, more flexibility and lower costs. Best of all, it will make this millionaire-maker savings plan accessible to more people.

When Congress passed the SECURE Act last year and President Trump signed it into law, it allowed a rarely used form of the 401(k) plan to become more universally available. Called “Multiple Employer Plans” or “MEPs,” prior to the SECURE Act their use was restricted generally to business associations. Beginning January 1, 2021, any company can pool their 401(k) plan with any other company.

These “Pooled Employer Plans” (“PEPs”) operate much like MEPs. The main difference is, unlike MEPs, PEPs do not require member businesses to share some form of commonality. And while this portion of the law doesn’t become effective until next year, that doesn’t mean the process of moving from stand-alone plans to PEPs hasn’t started.

“The transition has already begun,” says David N. Levine, Principal at Groom Law Group. “I’m involved in a number of PEPs where some small plan sponsors have already begun to plan the transition with their advisors. The impact on participants is likely in 2021 though.”

Even if your 401(k) plan is destined to joined a PEP come January, you won’t be able to tell just yet. In fact, depending on how the new plan operates and how often you look at your 401(k) account, you may not see anything at all.

“One of the main reasons why a company chooses to use a MEP/PEP is to transfer responsibilities and authority to someone else,” says Ilene H. Ferenczy, Managing Partner of Ferenczy Benefits Law Center. “So, probably the best way to ensure a good transition from the single employer plan to a MEP is for the company to let the MEP representatives do their job by following their directions carefully. The company’s staff should get as much information as it can about what the MEP representatives need, both initially and on an ongoing basis, and then set up internal systems to make that happen as easily as possible.”

There is a good chance, however, that moving from a stand-alone company plan to a PEP will bring wholesale changes in the financial professionals serving the plan. This also means changes in the investment options.

“Some 401(k) plan participants may be attached to their current plan advisor or investment funds, and many people are a little suspicious of change,” says W. Michael Montgomery, Managing Principal of Montgomery Retirement Plan Advisors. “However, this concern generally passes quickly if the benefits of expert, independent investment oversight is communicated clearly.”

On the bright side, if you (like many others) invest solely in a target date fund, while the name of the fund may change, the underlying investment strategy likely won’t change.

Even if the service providers remain the same and the fund line-up is retained, you may experience a slight hiccup in your 401(k)—but only if you’re paying close attention.

Normally, when a company plan undergoes a change, you’re notified that there will be a short “blackout” period while the old plan converts into the new plan. If you’re one of those “set it and forget it” types who prefers to let their 401(k) run on auto-pilot, you might not even notice this.

“The merging of a single employer plan into a MEP/PEP solution may or may not require a change of recordkeepers,” says Terrance Power, President of Platinum 401K, Inc. “Retention of the existing recordkeeper could likely eliminate the need for a ‘blackout’ of the plan, by the way. Most of the PEP solutions being proposed won’t require significant (if any) changes in plan design (eligibility, vesting, etc.). It is likely that there would be a shakeup in the investment fund lineup as a new 3(38) Investment Manager steps in to select and monitor the investment options. And depending on the structure of the new program, there could be a significant cost savings that could be passed on to the participants.”

You may think of your 401(k) as an investment tool, and, to some extent, it is. But it is the plan recordkeeper that makes sure all the trains run on time. This service provider is the hub which connects all other service providers. They keep track of all the accounts and the money flowing into and out of those accounts, including investment purchases and sales. When there’s a problem with your 401(k) account, it’s usually not a problem with the investment adviser, but with the recordkeeper.

This will often be where 401(k) MEPs and PEPs have their greatest challenges. Not only do these pooled plans introduce more complex logistics than stand-alone plans, but they also present the opportunity to streamline archaic processes. That may sound good, but it usually takes a few tries before you can be confident all the bugs are worked out.

“Be careful with 360 payroll integration,” says Troy Tisue, President of TAG Resources, LLC. “360 integration means a participant change on the recordkeeper’s site automatically adjusts at the payroll provider level. It’s a lofty goal and when this works, life is good. But bad data hitting a recordkeeper platform remains one of the biggest problems in this industry. 360 integration often just makes bad data hit the recordkeeper firms faster. Tracking eligibility across employers is unique to MEPs/PEPs—when an employee leaves one employer for another inside of a PEP, their eligibility goes with them. Pooled structures don’t just ‘plug-and-play’ with 360 integration—this takes a lot of planning.”

One area where you might benefit the most pertains to your own financial literacy. With stand-alone plans, companies can’t always afford the latest and greatest in employee financial education programs. It’s not unusual for smaller companies to use the same 401(k) vendor for multiple services.

Large companies with huge 401(k) plans can afford to hire specialists. By pooling their 401(k) plans together into a MEP/PEP, smaller companies’ retirement plans will now enjoy economies of scale similar to larger companies. That means they can hire skilled specialists that concentrate solely on employee education.

“Adopters within a MEP/PEP are able to utilize the service providers and fiduciary experts who focus on their vertical,” says Philip S. Scott, Registered Representative at Strategic Capital Advisers. “Participant education is one of these services, which are enhanced as a result of the Adviser(s) being focused solely on participant education and not being pulled into other operations of the Plan.”

Finally, there are some who view the new 401(k) MEP/PEP as a competitive alternative to state-sponsored retirement plans. Though in some sense this is true, it’s just as accurate to think of them as complimentary components on a similar spectrum.

“It’s interesting to me to see how naturally MEPs and PEPs fit into the retirement ecosystem alongside state-facilitated retirement savings programs like OregonSaves, Illinois Secure Choice, and CalSavers,” says Lisa A. Massena of Massena Associates LLC. “State Auto-IRAs give employers a reason to look at MEP/PEP, and MEP/PEP give employers a place to ‘graduate to’ when they’re ready to invest in a retirement program. By then they’ve also mastered the art of payroll deduction into retirement accounts, and they have a workforce savings track record that makes them a good customer.”

Because 401(k) MEPs/PEPs are more robust than state-sponsored plans, employees who have access to MEPs/PEPs will be able to save more. This increases the chances they can retire in comfort without undue reliance on government or their former company.

Financial independence is a goal you should have. The advent of the new 401(k) MEP/PEP will make this goal easier to attain for more and more people.

Medicare Advantage Riding High As New Insurers Flock To Sell To Seniors

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Source: Kaiser Health News

Health care experts widely expected the Affordable Care Act to hobble Medicare Advantage, the government-funded private health plans that millions of seniors have chosen as an alternative to original Medicare.

To pay for expanding coverage to the uninsured, the 2010 law cut billions of dollars in federal payments to the plans. Government budget analysts predicted that would lead to a sharp drop in enrollment as insurers reduced benefits, exited states or left the business altogether.

But the dire projections proved wrong.

Since 2010, enrollment in Medicare Advantage has doubled to more than 20 million enrollees, growing from a quarter of Medicare beneficiaries to more than a third.

“The Affordable Care Act did not kill Medicare Advantage, and the program looks poised to continue to grow quite rapidly,” said Bill Frack, managing director with L.E.K. Consulting, which advises health companies.

And as beneficiaries get set to shop for plans during open enrollment — which runs from Monday through Dec. 7 — they will find a greater choice of insurers.

Fourteen new companies have begun selling Medicare Advantage plans for 2019, several more than a typical year, according to a report out Monday from the Kaiser Family Foundation. (KHN is an editorially independent part of the foundation.)

Overall, Medicare beneficiaries can choose from about 3,700 plans for 2019, or 600 more than this year, according to the federal government’s Centers for Medicare & Medicaid Services.

CMS expects Medicare Advantage enrollment to jump to nearly 23 million people in 2019, a 12 percent increase. Enrollees shopping for new plans this fall will likely find lower or no premiums and improved benefits, CMS officials say.

With about 10,000 baby boomers aging into Medicare range each day, the general view of the insurance industry, said Robert Berenson, a Medicare expert with the nonpartisan Urban Institute, “is that their future is Medicare and it’s crazy not to pursue Medicare enrollees more actively.”

Bright Health, Clover Health and Devoted Health, all for-profit companies, began offering Medicare Advantage plans for 2018 or will do so for 2019.

Mutual of Omaha, a company owned by its policyholders, is also moving into Medicare Advantage for the first time in two decades, providing plans in San Antonio and Cincinnati.

Some nonprofit hospitals are offering Medicare plans for the first time too, such as the BayCare Health system in the Tampa, Fla., area.

While Medicare beneficiaries in most counties have a choice of several plans, enrollment for years had been consolidated into several for-profit companies, primarily UnitedHealthcare, Humana and Aetna, which have accumulated just under half the national enrollment.

These insurance giants are also expanding into new markets for next year. Humana in 2019 will offer its Medicare HMO in 97 new counties in 14 states. UnitedHealthcare is moving into 130 new counties in 13 states, including for the first time Minnesota, its headquarters for the past four decades.

Extra Benefits

Seniors have long been attracted to Advantage plans because they often include benefits not available with government-run Medicare, such as vision and dental coverage. Many private plans save seniors money because their premiums, deductibles and other patient cost sharing are lower than what beneficiaries pay with original Medicare. But there is a trade-off: The private plans usually require seniors to use a restricted network of doctors and hospitals.

The federal government pays the plans to provide coverage for beneficiaries. When drafting the ACA, Democratic lawmakers targeted the Medicare Advantage plans because studies had shown that enrollees in the private plans cost the government 14 percent more than people in the original program.

Medicare plans weathered the billions in funding cuts in part by qualifying for new federal bonus payments available to those that score a “4” or better on a five-notch scale of quality and customer satisfaction.

Health plans also gained extra revenue by identifying illnesses and health risks of members that would entitle the companies to federal “risk-adjustment” payments. That has provided hundreds of billions in extra dollars to Medicare plans, though congressional analysts and federal investigators have raised concerns about insurers exaggerating how sick their members are.

study last year found that those risk adjustments could add more than $200 billion to the cost of Medicare Advantage plans in the next decade, despite no change in enrollees’ health.

For-profit Medicare Advantage insurers made a 5 percent profit margin in 2016 — twice the average of Medicare plans overall, according to the Medicare Payment Advisory Commission, which reports to Congress. That’s slightly better than the health insurance industry’s overall 4 percent margin reported by Standard & Poor’s.

Those profit margins could expand. The Trump administration boosted payments to Medicare Advantage plans by 3.4 percent for 2019, 0.45 percentage points higher than the 2018 increase.

Betsy Seals, chief consulting officer for Gorman Health Group, a Washington company that advises Medicare Advantage plans, said many health plans hesitated to enter that market or expand after President Donald Trump was elected because they weren’t sure the new administration would support the program. But such concerns were erased with the announcement on 2019 reimbursement rates.

“The administration’s support of the Medicare Advantage program is clear,” Seals said. “We have seen the downstream impact of this support with new entrants to the market — a trend we expect to see continue.”

Getting Consumers To Switch

Since the 1960s, Mutual of Omaha has sold Medicare Supplement policies — coverage to help beneficiaries in government-run Medicare pay the portion of costs that program doesn’t pick up. But the company only briefly entered the Medicare Advantage business once — in its home state of Nebraska in the 1990s.

“In the past 10 or 20 years it never seemed quite the right time,” said Amber Rinehart, a senior vice president for the insurer. “The main hindrance was around the political environment and funding for Medicare Advantage.”

Yet after watching Medicare Advantage enrollment soar and government funding increase, the insurer has decided now is the time to act. “We have seen a lot more stability of funding and the political tailwinds are there,” she said.

One challenge for the new insurers will be attracting members from existing companies since beneficiaries tend to stick with the same insurer for many years.

Vivek Garipalli, CEO of Clover Health, said his San Francisco-based company hopes to gain members by offering low-cost plans with a large choice of hospitals and doctors and allowing members to see specialists in its network without prior approval from their primary care doctor. The company is also focused on appealing to blacks and Hispanics who have been less likely to join Medicare Advantage.

“We see a lot of opportunity in markets where there are underserved populations,” Garipalli said.

Clover has received funding from Alphabet Inc., the parent company of Google. Clover sold Medicare plans in New Jersey last year and is expanding for 2019 into El Paso, Texas; Nashville, Tenn.; and Savannah, Ga.

Newton, Mass.-based Devoted Health is moving into Medicare Advantage with plans in South Florida and Central Florida. Minneapolis-based BrightHealth is expanding into several new markets including Phoenix, Nashville, Cincinnati and New York City.

BayCare, based in Clearwater, Fla., is offering a Medicare plan for the first time in 2019.

“We think there is enough market share to be had and we are not afraid to compete,” said Jim Beermann, vice president of insurance strategy for BayCare.

Hospitals are attracted to the Medicare business because it gives them access to more of premium dollars directed to health costs, said Frack of L.E.K. Consulting. “You control more of your destiny,” he added.

DOJ Approves $69B CVS-Aetna Merger with Part D Divestiture

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Source: Fierce Healthcare

The Department of Justice (DOJ) approved a $69 billion CVS-Aetna merger on Wednesday after Aetna agreed to sell off its Part D business.

The Part D divestiture was a condition of the merger’s approval, according to the DOJ. Late last month, Aetna agreed to sell its 2.2 million Part D business to WellCare.

Antitrust regulators said the divestiture would “fully resolve the Department’s competitive concerns.” The DOJ along with attorneys general in five states filed a proposed settlement that approves the deal on the condition that Aetna sell off its Part D plans.

“Today’s settlement resolves competition concerns posed by this transaction and preserves competition in the sale of Medicare Part D prescription drug plans for individuals,” Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division said in a statement. “The divestitures required here allow for the creation of an integrated pharmacy and health benefits company that has the potential to generate benefits by improving the quality and lowering the costs of the healthcare services that American consumers can obtain.”

In a complaint filed to U.S. District Court for the District of Columbia, DOJ attorneys argued that without the divestiture, the combined company would cause “anticompetitive effects, including increased prices, inferior customer service, and decreased innovation” in the 22 states where Aetna sells Part D plans. The court must approve the settlement in order for it to move forward.

“DOJ clearance is an important step toward bringing together the strengths and capabilities of our two companies to improve the consumer healthcare experience,” CVS Health President and Chief Executive Officer Larry J. Merlo said in a statement. “We are pleased to have reached an agreement with the DOJ that maintains the strategic benefits and value creation potential of our combination with Aetna. We are now working to complete the remaining state reviews.”

Part D consolidation was the primary issue raised among groups opposing the merger, including the American Medical Association and the California Insurance Commissioner.

Congress takes up retirement disclosure proposal

Image result for retirement photos

Congress has begun work on the Lifetime Income Disclosure Act, a bipartisan measure that requires workplace retirement plans to give participants estimates of what retirement income their account balances would produce through an annuity. (4/7)

Commentary: Critical-illness insurance can protect savings

A critical-illness insurance policy can help “bridge the gap” in health coverage, writes Rod Rishel of AIG Consumer Insurance. Such policies offer a lump-sum payment that can help guard retirement savings and also provide continuity for small businesses, Rishel writes.

ThinkAdvisor (free registration) (3/28)

Insurance Sector Deal Making Shifting Into High Gear

Expect 2017 to be a year of deal making in the insurance industry, according to a report by KPMG International, with 84 percent of insurance companies surveyed planning to make between one and three acquisitions in 2017, while 94 percent plan at least one divestiture.  Two-thirds of insurers said they expect to undertake a cross-border acquisition this year.

According to the report, “The New deal: Driving Insurance Transformation With Strategy-Aligned M&A,” 33 percent of insurers say transforming their business model will be the primary driver of acquisitions in 2017, with an equal percentage citing enhancing their existing operating model and transforming their operating model as the motivators for deal activity.

“Insurers are clearly hungry for good M&A opportunities,” said Ram Menon, global lead partner at the Insurance Deal Advisory with KPMG in the United States. “They are focused on transforming their business and operating models, and even with geopolitical uncertainties, they are aggressively looking at deals that can help meet their objectives.”

Study explores link between financial, physical wellness participation

Researchers report in Psychological Science that employees who contribute to a 401(k) are more likely to see improvements in blood test abnormalities and embrace healthy behaviors than those who do not contribute to retirement accounts. The findings suggest attitudes about the future and whether they have the power to change it may play a role in retirement plan participation as well as engagement in wellness programs. (3/19)

Commentary: Long-term care needs to be part of health care overhaul

Any effort to reform and replace the Affordable Care Act should include provisions to address long-term care, write Everette James, Walid Gellad and Meredith Hughes of the University of Pittsburgh. Efforts to enhance long-term care should include strategies that bolster the LTC insurance market and changes to how Medicaid and Medicare cover LTC, according to James, Gellad and Hughes.

Health Affairs Blog (3/16)

Study: Part D has steadily cut elderly mortality rate

The mortality rate among elderly people has decreased by 2.2% each year since 2006 due in part to Medicare prescription drug coverage, researchers at the University of Illinois at Urbana-Champaign reported in the Journal of Health Economics.

United Press International (3/9)

Survey finds retirement worries

Eight out of 10 Americans don’t know how much cash they’ll need for a comfortable retirement, and just 27% of those 50 or older feel financially ready to pay for a decade of retirement, according to research firm Age Wave. The survey found that 75% of respondents would consider buying an “annuity-type” product with a lifetime income guarantee to be certain of a financially secure retirement, and 79% would be willing to work with a financial adviser to improve their retirement outlook.

Investor’s Business Daily (3/6)

Last Updated 06/29/2022

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