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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
from Spencer’s Benefits Reports: Current retirees can continue to count on their employer-sponsored subsidized retiree medical benefits, although at a higher cost, according to the 2006 Kaiser/Hewitt Survey on Retiree Health Benefits. However, future retirees would do well to plan to finance their medical costs on their own as the coverage might not be available. The online survey of 302 large private-sector employers with at least 1,000 employees was conducted between June and October 2006, when employers were finalizing their benefits decisions for 2007, explained Frank McArdle, a principal at Hewitt and coauthor of the study.
An earlier study from the Kaiser Family Foundation and the Health Research Educational Trust (HRET) found that the proportion of employers with at least 200 employees sponsoring retiree medical benefits dropped significantly from 66% in 1988 to 35% in 2000, a figure that has remained stable through 2006. In 2005, employer-sponsored retiree medical plans covered an estimated 5.2 million retirees and dependents, including 3.4 million Medicare-eligible retirees (more than one-fourth of 12 million retirees on Medicare with retiree health care benefits). In 2006, about two-thirds (67%) of firms providing health care benefits to retirees made those benefits available to new hires.
As costs for these benefits have risen, plan sponsors increasingly have shifted more of the costs to retirees through higher premiums and cost-sharing. The Medicare Part D drug benefit, entering its second year, has provided employers some financial relief for Medicare retirees, but employers still face significant financial pressure from costs for benefits for pre-age-65 retirees, Mr. McArdle said at a news briefing on December 13.
In 2006, 74% of firms increased early retirees’ health benefit premiums and 58% raised premiums for Medicare-covered retirees. Firms also raised retirees’ cost-sharing requirements—34% of firms for early retirees and 24% of firms for Medicare-covered retirees. For new retirees (defined as workers who retired on or after Jan. 1, 2006), increases averaged 15.1% for early retirees and 9.6% for Medicare-age retirees. This trend toward retirees paying a larger share of the cost is likely to continue in 2007, according to the survey, with 64% of firms increasing premiums, 26% raising cost-sharing, 20% raising drug copayments, and 18% increasing out-of-pocket limits.
For early retirees in 2006, the total annual average premium (including retirees’ share) for retiree-only health coverage was $6,624. The total average premium for Medicare-eligible workers who retired in 2006 was $3,240 per year. Both groups of retirees on average paid approximately 41% of the premium cost. Overall, plan sponsors reported a 6.8% rise in total costs for retiree medical benefits from 2005 to 2006, consistent with the increase in health care costs for active workers, the Kaiser/Hewitt study found.
Only one-fourth of firms prefund their anticipated retiree medical liabilities. More employers are not prefunding these liabilities because the options to prefund in a tax-effective way are limited, Mr. McArdle pointed out. “While most employers are not prefunding, many of them support expanded tax-favored funding opportunities which would help secure benefits for retirees and reduce unfunded retiree health liabilities that are more visible under new accounting rules,” he stated. Prefunding would help lower the liability that firms must report on their financial statements and also would offer more security to retirees planning on those medical benefits in their retirement.
When asked the role that the federal government should play in financing retiree health benefits for early retirees, 54% of the respondents opposed a larger government role and 46% supported it. The “yes” response would have been higher had the respondents who responded negatively been able to review the options listed for “yes” responders, Mr. McArdle speculated.
Of those who supported the federal government playing a larger role in retiree medical financing, the most popular option was expanding tax-favored funding opportunities for employers (72%), followed by the ability for tax-free transfer of individual retirement funds to pay for health care (66%) and for early retirees to buy into Medicare and pay the full cost (61%). All of these actions also would benefit retirees, Mr. McArdle observed.
A small proportion of employers have begun to limit the number of future retirees who will be eligible for medical benefits: 11% eliminated benefits for a group of early retirees and 9% did so for future Medicare-eligible retirees. For 2007, 10% of responding firms thought it was very likely or somewhat likely that they would end subsidized coverage for some future retirees.
Account-based retiree medical plans (such as health savings accounts (HSAs) and health reimbursement arrangements (HRAs)) were offered in 2006 by 10% of employers for early retirees and 3% of employers for Medicare-eligible retirees. For 2007, 10% and 7% of respondents, respectively, indicated that they were very likely or somewhat likely to offer these plans. “There has been an uptick in employer interest in these plans,” Mr. McArdle said, adding that he expects to see growth in account-based plans, particularly in HRAs, as explanations of how HSAs work are more difficult.
A small proportion (7%) of retiree medical plan sponsors said that they were very likely or somewhat likely to add or improve coverage by, for example, reducing retiree premiums or introducing preventive benefits.
In 2006, 82% of responding firms accepted the employer subsidy for their drug benefits that are actuarially equivalent to the Medicare Part D drug benefit, and 78% will do so for 2007. While that trend is expected to continue for the next couple of years, slightly more than half expect to claim the subsidy for 2010. Eight percent of responding firms in 2007 (the same as in 2006) will discontinue retiree drug benefits for Medicare-eligible retirees. The attraction of the Medicare subsidy for plan sponsors, at least in the initial years of the program, includes the following reasons, Mr. McArdle noted:
The survey results also suggest that Medicare-eligible retirees carefully consider their options before they sign up for the Medicare drug coverage. At more than one-third (36%) of firms, retirees who sign up for a Medicare drug plan would lose their entire employer-sponsored retiree medical coverage, while at another 32%, retirees would lose only their retiree drug coverage. Furthermore, more than half (57%) of retiree medical plan sponsors would not allow a retiree who enrolls in a Medicare Part D plan to rejoin the employer plan. In addition, 82% of the firms planning to collect the retiree drug subsidy in 2007 said that the covered spouse of a retiree who enrolls in a Medicare Part D plan would not be able to continue employer-sponsored coverage.
The full Kaiser/Hewitt survey is available free of charge at http://www.kff.org/medicare/med121306pkg.cfm.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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