Asset Accumulation Alert.
Summary paragraph: The hurdles of the new health care act
Each new year arrives with a mixture of optimism, trepidation and excitement. Historically, the final six weeks of each calendar year are reserved for getting clients' plans in good order for the next 12 months, whether that means revising asset class lineups, updating client documentation, business-planning or restructuring client defaults.
During their 2013 year-end plan reviews, retirement plan advisers undoubtedly discussed with their clients such topics as maximizing plan outcomes, retirement plan industry norms, benchmarks and peer group averages.
However, this year, your clients will experience yet another key employee benefits concern, namely the administration and costs associated with the Patient Protection and Affordable Care Act (ACA). Retirement plan advisers must now engage in conversations with plan trustees concerning the ACA and the corresponding influence it will have on their plan sponsor clients and their work forces.
Embarking on a New Era
As consumers and managers of our own health care, we were directed by House Minority Leader John Rusche, D-Idaho, to embrace the ACA. In essence, Rusche said the act will expand health care coverage for Americans, lower expenses for those currently insured and improve the cost of health care, overall. So far, however-as of my writing this column-America's health care consumers have faced sign-up and execution hurdles due to glitches with the plan's website.
For us as advisers, our initial education includes being introduced to terms and practices that had heretofore been foreign or unnecessary. One of the bigger learning curves coming through the ACA is attributable to introducing exchanges at both the federal and state levels. Retirement plan advisers are no strangers to exchanges, as we have worked with, in and around them throughout our careers. Exchanges have been prevalent and used in an orderly fashion in our industry for far longer than anyone alive today can recall.
Insurance exchanges have existed since the 1600s, when those gathering at Lloyd's Coffee House on Tower Street near the Thames in London would isolate and mitigate risks associated with the safe passage of merchant ships that, at the time, transported spices, tobacco, silk and other goods around the globe. Coffee house exchanges would operationally function by matching a willing buyer of risk (an investor) with a willing seller of risk (a merchant), so that the loss of a single ship (by weather, war, pirates or some unknown event) would not bankrupt a merchant shipping concern. These exchanges, born of necessity, served the willing buyer and the willing seller, thus birthing the basis for what we know today as the insurance industry.
Another well-known exchange group was also born of necessity-this one during the 1700s under a buttonwood tree. This particular buttonwood tree happened to be at 68 Wall Street in Manhattan. Here, 24 individuals (willing sellers meeting with willing buyers) exchanged interests in bonds and shares of companies. That institution continues to operate today-now located a short distance away, at 11 Wall Street-as the New York Stock Exchange.
Although the term "exchange" is referenced frequently throughout the ACA, one question remains: Does an exchange exist? Foundational ingredients for both the Risk Transfer Exchange (Lloyd's) and the New York Stock Exchange were: 1) orderly markets; 2) willing buyers; and 3) willing sellers.
Retirement plan advisers need to face the fact that, no different than the dilemma faced by companies in allocating their benefits budgets, there are limited dollars available to plan participants to fund all benefits. The working American who may experience a significant rise in his health care costs this year will need to identify sufficient resources to pay for them.
Does the increased expense of present-day, post-ACA health care come at the expense of future retirement savings? Only time will tell ... but we probably know the answer.
Steff C. Chalk is CEO of Fiduciary Consulting and Governance Group Inc., a fee-only fiduciary consulting practice serving corporations and nonprofits. A judge for the PLANSPONSOR Retirement Plan Adviser of the Year award and a faculty member of the PLANSPONSOR Institute, he is also the co-author of "How to Build a Successful 401(k) and Retirement Plan Advisory Business."