Just how severe is the burden? According to the 2012 Genworth Cost of Care survey, adult day care services now top $61 per day. Assisted living facilities will run an average of $3,300 per month, and a semi-private room at a skilled nursing facility now stands at $200 per day on average – with certain markets cost significantly higher than that.

Increasingly, through their own hard experience with aging family members, workers are becoming aware that Medicare does not provide significant services for long-term custodial care for chronic conditions. And Medicaid, while there as a last resort – will typically force your workers to impoverish themselves paying for their own care before they qualify.

But the costs of long term care aren’t always measured in dollars. According to the Evercare Study of Family Caregivers, a survey conducted with the National Alliance for Caregiving, there is a statistically significant correlation between out-of-pocket spending in care provided to family members and adverse emotional effects, including depression, anger, sleep problems, hopelessness, and anxiety. These stressors are spilling over into other negative behaviors such as alcoholism, smoking, and prescription drug abuse. Health problems such as obesity, diabetes, high blood pressure and heart disease are aggravated. Workers are prone to sacrifice themselves and their productivity for the sake of their relatives.

Does it spill over into the workplace? Absolutely. According to a recent survey in The Gerontologist, working caregivers experienced a 21 percent loss in productivity, compared to workers not so affected by the need to provide long term care – using the Work Productivity and Activity Impairment WPAI Scale. Workers made routine mistakes, quality control suffered, and reported more distractions at work. The survey found that one out of 20 missed days at work, while the remainder were only 80 percent as effective as their peers. The cost to employers? Between 17.1 and 33.6 billion per year, according to the MetLife Mature Market Institute.

Yet employers have been slow to add long term care as an employee benefit.

But employers have not been rushing to provide future affected workers with relief. According to the John Hancock Company, 60 percent of employers surveyed realized employers perceived a problem with long-term care planning in their own lives. And they ranked it as number 2 on employee concerns – second only to retirement concerns. Yet only one in five offered long term care as an employee benefit. But employers have been cutting compensation costs and have not embraced much in the way of new benefits.

Of those employers who had implemented a LTCi program, though, satisfaction was high. Only 5 percent were unhappy with their plans’ costs and implementation.

Voluntary Payroll Deduction

That’s where VPD programs can really come in handy. Carriers realize the severe competitive pressures employers face. But by making long term care insurance available on a voluntary payroll deduction basis, you can provide these important benefits to your employees at little or no cost to the business.

Additionally, offering LTCi is still rare enough that it is an important differentiator that will build employee loyalty. The LTC need is common enough that workers talk among themselves about their own experiences. As the aging population makes the LTC need more acute, we believe the perceived value of a workplace long term care insurance program will increase.

Flexible Spending Accounts
These accounts are sometimes called flexible spending arrangements. They are tax-advantaged accounts that let employees automatically deposit a specific amount of each paycheck into them. Once there are funds in the account, they can be used to pay for current or future medical expenses. These accounts are different from HSAs and HRAs in the respect that they are usually offered with traditional medical plans. They also differ from HSAs in the respect that the unused funds in the account may not be carried over to the next year. Debit cards or forms are used to access funds from the account if money is needed.

Flexible spending accounts allow account holders to contribute to the FSA for any costs that aren’t covered by insurance. Some examples of such expenses include coinsurance, copay amounts and deductibles. If a health insurance won’t cover a treatment or related health expense, FSA funds can be used to pay for it. The specified limits saw some changes from 2011 to 2012

Contribution Limits
It was decided that 2012 would be the last year for no limits on FSA contributions. While there may not be limits in place, plans must specify a maximum percentage of compensation to be contributed to the FSA or a maximum dollar amount. The changes from 2010 to 2011 included over-the-counter medicines being eliminated from coverage if they weren’t prescribed by a doctor. The year 2013 will likely see one of the biggest changes: FSA contribution limits of $2,500 annually with yearly inflation increases.

Health Savings Accounts
HSAs are medical savings accounts that also have tax advantages. Taxpayers who are enrolled in HSA-qualified health plans with high deductibles are able to obtain them. At the time of deposit, the funds contributed to these accounts are not subject to federal income tax. Any unused funds that remain in the account at the end of the year are carried over to the next year and added to further contribution amounts. Since contribution also change with these plans each year, it’s important to be aware of the changes. The changes from 2011 to 2012 include an increase in out-of-pocket HDHP maximums and HSA contribution limits. However, there are no changes with the HDHP required minimum deductibles.

HSA Contribution Limits
Family: $6,250
Individual: $3,100
Catch-Up Contributions: $1,000

The individual amount of $3,100 reflects an increase of $50 from 2011′s limit. The $6,250 limit for families is an increase of $100 from 2011. Catch-up contribution limits, which are for people over the age of 55, remain the same between 2011 and 2012.

HDHP Minimum Required Deductibles
Self: $1,200
Family: $2,400
HDHP Out-Of-Pocket Maximum – Family: $12,100
HDHP Out-Of-Pocket Maximum – Self: $6,050

The HDHP limit increased by $100 between 2011 and 2012 for singles and by $200 for families. Another change between 2011 and 2012 is eligibility of over-the-counter medicines. Insulin is the only OTC medicine approved for reimbursement in 2012 under a health FSA, HSA or HRA without a prescription. In addition to this, it was decided that the penalty of 10 percent for ineligible expenses paid for using HSA funds would increase to 20 percent in 2012.

Within the past few years, retirement programs have become more powerful retention tools for companies with younger employees and defined benefit plans. More than 70 percent of workers at such companies say that retirement plans offer incentive to stay with the employer. However, the percentage of employees who felt this way in 2009 was less than 40 percent. The percentages for employers with younger employees and only defined contribution plans are about half of these figures.

Two factors influencing this change are the rising number of older employees putting off retirement and slow economic recovery. As older employees put off retiring, they make it much harder for younger people seeking jobs to get hired or advance in their careers. With the combination of these two factors, younger employees must put a greater importance on health care and retirement benefits in relation to employment decisions.

In the Towers Watson survey, the number of employees who felt retirement programs influenced their decisions to accept or decline jobs within the last two years increased by more than 40 percent. However, employees hired within the last two years by companies with defined benefit programs were three times as likely to say that retirement programs affected their employment decisions. At companies with defined contribution plans, the importance of retirement benefits with new hires has only grown a small amount. The number of employees reporting that benefits influenced their decision with such companies was less than 20 percent.

Workers who take jobs with companies offering defined benefit plans usually intend on staying with the employer long term. The Towers Watson survey found that more than 75 percent of new hires at such companies felt that the defined benefit plans gave them great incentive to stay. More than 80 percent said they hope to stay with their current employers until retirement. Building and maintaining an effective workforce is important in both good and bad economic situations. A company’s workforce often determines its failure or success. Employers offering defined benefit plans seem to have an advantage over employers offering only defined contribution plans. Understanding what workers want is crucial, and making the change to offer good retirement benefits is what will attract and keep good employees.

You have to start taking yearly withdrawals (RMDs) from your 403(b) once you reach age 70½ … unless you continue to work. If you work past that age, you can delay your first mandatory withdrawal until you retire.¹

Now, many educators and non-profit employees have more than one 403(b) as they have worked for multiple colleges, school districts or organizations. In this case, the required withdrawals for each 403(b) must be figured separately and then the required amount must be taken out from each one.¹

Because of all this, calculating your 403(b) withdrawal amounts requires some homework. You may need to track down paperwork for any “zombie” 403(b)s that are still with your previous employers. There is also the question of whether you should keep working into your 70s to avoid the income tax implications of a big 403(b) payout.

Citations

1 www.kiplinger.com/columns/ask/archive/required-minimum-distributions-for-iras-and-401ks.html [6/10/11]

The constitutionality of the law, however, is in question. A majority of states have joined in a lawsuit challenging the authority of the federal government to impose a mandate for citizens to purchase a given product or service – an unprecedented expansion of government power, if allowed to stand. The U.S. Supreme Court is scheduled to hear arguments this spring and will rule on the issue this year.

There is a chance that the entire law will be struck down, in which case we return largely to the status quo ante. Another scenario is that the Supreme Court will strike down only the portion of the law that requires citizens to buy government-approved insurance or face a fine. However, since the system depends on the healthy buying into the system along with the sick, in order to contain costs versus revenues, it would be nearly impossible for the law to go into effect without the mandate.

We cannot predict how the Supreme Court will rule. As things stand right now, however, here is how you may be affected by the law:

Overall Effects

The law will likely benefit the currently dispossessed, unemployed, underemployed, and those with pre-existing conditions who have trouble getting health insurance on the individual market. The law will also potentially benefit U.S. companies that do business abroad, on the theory that exporters can offload a significant part of their current health care expenses to the government – thus making them more competitive against competitors from countries with socialized health care systems.

Those who currently have good health insurance, including executives, managers, professionals, certain government employees, and those in established unions with generous health benefits may see the quality of your coverage and available care deteriorate substantially.

What has happened already?

These changes have already occurred:

As mentioned, lifetime limits have been revoked. You can never exhaust your benefits.

Plan members can keep their unmarried dependents on their plan until they turn 26. This will benefit college-age people without access to a student health plan, and unemployed or underemployed young people in transition.

Coverage for certain preventative screenings and tests such as colonoscopies, high blood pressure, diabetes, STDs and osteoporosis has been expanded.

Plans are now required to cover smoking cessation counseling.

Future Changes

As of 2014, all uninsured individuals must purchase a health insurance plan. The government will subsidize the purchase for low-income individuals.

Those who have pre-existing health conditions will be able to purchase coverage from a government-subsidized exchange, also available in 2014.

Those who remain uninsured will have to pay a penalty of as much as 1 percent of their income. (Some may choose to pay the penalty rather than buy coverage, especially since pre-existing conditions are no longer an obstacle to obtaining coverage.)

Wait times to see a doctor could increase. Many more people will increase their demand for care once they have coverage – but the supply of available health professionals will not increase. The result could cause wait times to more than double in some markets.

Administrative and regulatory requirements could force many smaller practices out of business, moving patient loads to larger clinics and institutions.

Medicare

In order to fund the more general benefits under the PPACA, Congress stripped roughly a half trillion dollars from Medicare over the next eight years. Consequently, we are likely to see more stringent cost controls on Medicare patients. We could see a sharp reduction of costly procedures and screenings for the elderly.

Employers will cut back offered benefits. So-called “Cadillac” plans will nearly disappear, under threat of government fines, as of 2019. This could affect your access to retirement health benefits (such as those provided under some union contracts) and even private vision and dental plans. It could also make it difficult or impossible for you to see a specialist without first obtaining a referral, since the vast majority of health care will convert to “managed care” models such as HMOs and PPOs.

Benefits for Women

As of 2014, all insurers must cover maternity benefits on an equal basis with other medical procedures. Employers are also required to allow break times for nursing mothers and a suitable place in the workplace for lactating mothers to pump breast milk.

Recently, regulations passed by the Department of Health and Human Services are also requiring employer health plans to provide coverage for birth control, including the RU-486 abortion-inducing pill. This provision has been hotly contested this year by some employers, including the Catholic Church and affiliated charities and hospitals. As of March 2012, the Obama Administration is still requiring this coverage. However, if Obama loses the presidential election, we expect that these requirements will be loosened for religious employers or repealed altogether.

Higher Taxes

Beginning in 2013, a 3.8 percent Medicare payroll tax will take effect on certain “unearned income” for those with incomes over $200,000 a year – or $250,000 for married couples. An additional 0.9 percent Medicare contribution tax will also kick in for higher income individuals, unless Congress acts to repeal this provision.

The tax will also apply to gains on real estate transactions – which will become a significant planning consideration for those involved in the real estate market. The $250,000 exemption for single taxpayers and $500,000 exemption for married couples on the sale of a qualified personal residence will still apply, however, for the purposes of calculating the unearned income Medicare contribution tax. If your home qualifies, you will only be subject to the 3.8 percent tax on gains exceeding the exemption.

Employers must be classified as more than fully funded to be able to end a pension plan. This is because they must be able to produce lump sums to participants who want them. They must also be able to pay the price for annuities for participants who want regular monthly checks. However, annuity options are much more costly than lump sums under the new rule. This rule makes closing plans more attractive to employers.

Programs that didn’t previously offer lump sums may alter current plans in order to accommodate the new changes. Employers may also face higher insurance premiums for every participant in the plan to protect them if the company becomes bankrupt. When an employer gives an employee a lump sum, the employee is removed from the roster, which lowers the amount of insurance the employer must pay in the future. In order to qualify for lump sum payouts, plans must be more than 80% funded. The new rule also brings concerns for employers who have frozen their plans or are considering terminating them. Almost half of the plans in the United States are frozen or closed to new employees.

Individuals who are faced with the decision of accepting a lump sum should consider the choice carefully. It’s important to avoid being hasty. After accepting a lump sum, there is no way to reverse the choice. Although many people would choose a lump sum over an annuity, it’s important to consider the long-term benefits an annuity has for some individuals. One of the biggest benefits an annuity has over a lump sum is that individuals don’t have to be concerned about outliving their retirement income. If an individual’s lump sum runs dry before death, they’ll outlive their income. Individuals don’t have to be concerned with how to invest money when choosing an annuity. However, the risk of inflation is a factor. Future purchasing abilities could possibly be cut substantially if normal inflation rates continue. If inflation increases excessively in the future, this could make fixed payments less beneficial.

Many plan members also have the choice of a partial lump sum combined with a fixed monthly payment. Some individuals may choose this option to pay off a mortgage, vehicle or various debts before receiving their monthly retirement payments. This is a beneficial choice for individuals who face retirement with substantial debt. In most cases, divorced employees who are entitled to benefits must have their spouse sign a waiver to give up the right of a survivor benefit. Married individuals are usually offered an annuity that is based on their life. A smaller monthly benefit lasting until the other spouse dies is another choice they may have. Spouses may be entitled to a full pension benefit in some cases. However, they may be entitled to only half in some cases. Many married couples have a better chance of a comfortable retirement by choosing a single-life benefit along with regular life insurance for the surviving spouse’s benefit. Every person’s situation is unique, so there is no answer that is right for every individual case. Before signing the paperwork for a payout or annuity, be sure to speak with a qualified agent to understand all available options.

Financial statistics show that at least 80% of our country’s biggest earners are considered first generation millionaires. Furthermore, many American multi-millionaires started from next to nothing, but amassed fortunes by making wise financial decisions.

Words of Advice        

Many millionaires in our nation are said to have a “middle-class attitude,” with the wants and needs of the average citizen. The difference lies in the choices they make with their money throughout their lives. Here’s some financial advice from real millionaires.

Plan Ahead – Financial success doesn’t just happen overnight, it comes from having a long-term plan. Set a long-term objective, and then plan out smaller goals along the way that can help achieve the objective, like cutting out those expensive lattes every morning.

Take Risks – Taking risks, like starting up a business, provides financial opportunities that desk jobs simply cannot. When compared to employees, self-employed individuals are almost five times as likely to become millionaires.

Live Modestly – If a person had to pay the expenses of owning a mansion and exotic cars, they wouldn’t be rich for very long. Many immigrants in America became millionaires by living modestly and thinking of the future before making unnecessary purchases.

Save, Save, Save – Putting away between 15-20% of annual earnings builds an enormous nest egg.

Invest with Care – Real millionaires do not use the stock market as a means for instant success, but instead carefully research the long-term trends of different stocks and invest in mutual funds with the help of an investment professional.

Become Tax Savvy – The rich understand how various forms of income are taxed differently. For example, income from wages is taxed at much higher rate when compared to income from stock dividends. They also understand the many tax deductions that result from owning a business.

Three Easy Guidelines

There are three things people can do every day to help them increase their wealth:

Set Goals – Start with the big picture and work backwards, identifying different goals that will get you to where you want to be. This could include sticking to a weekly budget or creating a timeline for paying off debts.

Spend with Caution – Buy the things you need, but before you spend a ton of money on something, consider the benefits of investing that money instead. Also, avoid relying on credit cards for making larger purchases. Credit cards make it too easy to buy things you cannot afford and paying those interest rates is like throwing your money down a well.

Save Regularly – “A penny saved is a penny earned.” Corny or not, it’s true. Make saving a part of your daily life. It can start with collecting pocket change each evening, but work towards taking a portion of each week’s pay to put into savings.

Best wishes on your journey to financial happiness!

A survey from Harris Interactive and Charlton Consulting Group indicates that most employees do not understand the full value of their salary and benefits, which can lead to dissatisfaction with their compensation package, and with their employer and working situation overall. According to this survey, 51% of workers believe that their employer pays 30% or less for employee benefits, such as health care, life, disability and retirement. However, the Department of Labor’s Bureau of Labor Statistics puts employers’ contributions at 43%, over and above wages, for employee benefits.

That survey also found a correlation between employees’ understanding of and their satisfaction with their total compensation, with 75% of the employees who said they are very satisfied with their benefits also saying they have at least quite a bit of understanding about their benefits package. Such a correlation also was found in a survey from Univers Workplace Benefits and Employee Benefit News. According to that survey, employees who are knowledgeable about their benefits are almost 30% more likely to be satisfied with the benefit plans offered.

How do these indicators play out in the day-to-day workings of companies? According to the Univers survey, companies that have high employee satisfaction with benefits are 86% more likely to say that benefits positively affect their recruitment and retention efforts. Further, firms with employees who are knowledgeable about their benefits are two-thirds more likely than other firms to report turnover rates of under 20%.

Clearly, effective communications yield positive results, not only for employees, who are empowered to choose and use benefits wisely, but also for employers, who are likely to see a more stable and motivated workforce as a result of satisfied employees. Key elements of effective employee benefits communications include:

• Establishing a specific budget item for benefits communications and funding it adequately.

• Enabling those employees responsible for benefits communications to stay abreast of the latest trends and technologies by investing in their training.

• Creating a benefits communications strategy, a plan for implementation, and benchmarks against which to measure success.

• Using multiple types of media to recognize that everyone learns in different ways, and that some employees will respond to printed materials, others to visual displays, and still others to oral communications such as meetings.

• To the extent possible, targeting communications to individual employees and employee demographic groups.

• Recognizing the difference that one-on-one communications can make to some employees and trying to build time into the communications plan to allow for this.

Remember that effective communications are not a one-shot deal; messages sometimes must be repeated often, albeit in different ways and through different media, to truly take hold with the listener. The result can be employees who are more satisfied, not only with their benefits but with their employer overall, which can lead to a more stable, more productive workplace.

One Simple Strategy                           

The main purpose of life insurance is to provide survivors with enough funds to pay the final expenses and continue life comfortably. This is why most calculators are programmed to suggest a chunk of money equal to at least 20 years of regular income. With overall longer life expectancy and a lower savings yield, this may be too high of a goal for most people. There is a much simpler strategy for figuring out exactly how much insurance is needed. It is also better to buy from a plan that is easy to update. After projecting personal needs from the following four categories, assess the situation to see if extra coverage or different policies are needed.

1. Debts & Mortgages
Write down the total of all auto loans, mortgages, student loans and any other debts. All of these debts may be a serious burden for survivors to handle. However, survivors may choose to keep up mortgage payments. Be sure to allow enough money that this will be possible.

2. Final Expenses
Traditional funerals may cost between $10,000 and $20,000. While pre-planning a funeral is beneficial, it is even more important to ensure enough life insurance funds are available to pay the final bill. For a reasonable funeral figure, aim for $15,000.

3. Income Replacement
Families will not need 100 percent of the policyholder’s current income. Be sure to deduct final expenses, education costs and debts. As a rule, it is best to plan on replacing 50 percent of pretax income until retirement. This amount can be placed in a lump sum by dividing 50 percent of annual income by 0.05.

4. Education Expenses
This may be one of the most difficult calculations. Each school varies in tuition costs, and the tuition rates may be much different by the time children are ready to enroll in college. The average cost of college tuition has been rising by about five percent each year. This is the same rate life insurance is expected to grow over time. Calculate the future cost of tuition at the desired colleges, and add the amount to a life insurance policy.

To determine how much life insurance is needed, add all four of these categories’ totals. If there is no pension, it is beneficial to increase the amount. However, if a spouse earns a considerable salary, it may be feasible to decrease the total. For family members with unique or troublesome medical conditions, add between $100,000 and $250,000. The overall total usually adds up to a six-figure amount or slightly over $1 million. Increasing a death benefit on a term life insurance policy usually costs several hundred dollars each year, so the premium amount should not be impossible to pay. To get a better idea of what to expect for a premium, discuss the figures with an agent.

Getting married, having children, buying property and retiring are all life steps that require more life insurance. There are many different options for this coverage. Young and healthy individuals can usually lock in a low price for many years. Some policies also come with the option to convert to permanent coverage, which can be kept regardless of future health conditions. Term life becomes expensive after age 65, so it is a smart idea to consider whole or universal policies. To determine the best option, discuss personal details with an agent.

The report by the Defined Contribution Institutional Investment Association stated that plan sponsors are helpful in preventing leakage by making changes to practices in hardship distributions and plan loans. When considering the adequacy of American workers’ retirement, DCIIA’s research committee chair points out that both the industry and plan sponsors emphasize enrollment in 401(k) plans and higher levels, which is critical for building a secure retirement income. The committee’s research defines the importance of encouraging employees and retirees to keep their assets in their plans.

This report is connected to another research report from 2010 that was completed with information from the Employee Benefit Research Institute, the DCIIA’s “Raising the Bar: Pumping Up Retirement Savings” report and the Impact of Auto-Enrollment & Automatic Contribution Escalation on Retirement Income Adequacy. The main message of these reports is that automatic contribution and enrollment escalation may bring a material improvement in retirement income replacement. This fact is especially true for low-income workers. However, the effectiveness of the plan depends on how it’s implemented and utilized.

Although many people have the misconception that loans and cash outs aren’t extremely harmful, the committee chair points out that research shows the opposite. Pre-retirement distributions are, according to their report, the most harmful forms of plan leakage in the contribution system. Their research also shows that cash outs may lower the likelihood that participants will replace most of their income in their plans by more than five percentage points. The reduction rate for hardship withdrawals may be as high as three percentage points. When the projected impact of hardship withdrawals, cash outs and participation delays are combined, the success probability falls by more than 14 percentage points. This total presents a failure risk for retirement income replacement.

Recommendations
Since plan sponsors and policymakers impact the outcome of American workers’ retirement funds, there are several things plan sponsors should do:

• Encourage rollovers by offering online options.
• Permit loan payments following termination.
• Encourage new employees to add balances from previous employers into their new plans.
• Lower the number of allowed loans.
• Restrict the available loan balance.
• Encourage retired employees to keep assets in the plan through good communication and flexible design.
• Encourage employees using hardship withdrawals to restart contributions to the plan.
• Automatically restart contributions after the statutory suspension period following hardship withdrawals.

The DCIIA also recommends these inclusions:

• Instead of automatically allowing cash outs upon termination, allow them only to those who are truly in need.
• Put limits on loans, and allow repayment of loans after termination.
• Strike out the six-month suspension requirement for hardship withdrawals.

It’s important to design a plan structure that encourages more contribution and less withdrawals from plan funds. These changes benefit both the plan sponsor and the participants who contribute.