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Retirement Wellness IS THERE A CURE-ALL SOLUTION? Planning for Retirement Health Care Costs Presenter Name Date

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Page 1: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

RetirementWellness

IS THERE A CURE-ALL SOLUTION?

Planning for Retirement Health Care CostsPresenter Name

Date

Page 2: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

22

Agenda

01WHAT DOES THE HEALTH CARE

LANDSCAPE LOOK LIKE?

02HOW CAN EMPLOYEES SAVE / PLAN FOR HEALTH CARE EXPENSES?

03WHY INCLUDE HEALTH CARE IN YOUR RETIREMENT SAVINGS STRATEGY?

Page 3: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

Health Care Landscape

Page 4: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

44

The Average Employee Is Unprepared for Retirement

1T. Rowe Price Retirement Savings and Spending Study (2018). Representative national study of 3,005 adults 21 years old or greater, never retired, currently

contributing to a 401(k) plan or eligible to contribute and have a balance more than $1,000. Survey was conducted online July 24-August 14, 2018.2U.S. Census Bureau at al. 20143Sophie Bethune, “Money Stress Weights on Americans’ Health”, Monitor on Psychology, Volume 46, No. 4, Page 38, 2015, American Psychological Association.

Reprinted with permission.4Bankrate Money Pulse survey, December 2015

63%

expect to run out of money1

can’t afford to contribute more to their plans1

of wages go to consumer debt payments2

don’t have enough savings to cover a $1,000 emergency4

say finances are the largest source of stress

in their life3

24%

25% 57% 64%

Page 5: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

55

Top Five Fears About Retirement

Source: Employee Financial Wellness Survey, PwC US, 2018.

PwC’s Employee Financial Wellness Survey tracks the financial and retirement well-being of working U.S. adults nationwide. The 2018 survey incorporates the views

of 1,600 full-time employed adults representative of the U.S. population by age and gender. The margin of error is +/- 3%. Participants are categorized by generation

using the following age groups: 21 to 36 (Millennials), 37 to 57 (Gen X) and 58 to 75 (Baby Boomers).

40%

Running out

of money

1

33%

Health issues

2

28%

Health care costs

3

17%

Inability to

meet monthly

expenses

4

17%

Inability to

maintain standard

of living

5

Page 6: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

66

Health Care: One of The Greatest Expenses in Retirement

Source: U.S. Bureau of Labor Statistics, A Closer Look at Spending Patterns of Older Americans, 2016

36%

16%14%

12%

4%

2%

16%

Housing

Health Care

Transportation

Food

Entertainment

Clothing

Miscellaneous

EXPENSES FOR AMERICANS AGE 75+

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77

How the Health Care Dollar Is Spent

Source: Centers for Medicare and Medicaid Services, National Health Expenditures, 2017

33%Hospital Care

28%Other

20%Doctor Visits

and Services

10%Prescription

Drugs

5%Nursing Home

4%Dental

Services

Page 8: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

88

A Closer Look at Medicare

Page 9: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

99

Medicare Alone Won’t Be Enough

Medicare is representative of Part A and Part B coverage.

Source: Medicare.gov 2018

MEDICARE COVERS MEDICARE DOES NOT COVER

Inpatient hospital costs

Surgeries

Doctor visits

Lab tests

Preventive screenings

Equipment, such as

wheelchairs

Hearing aids

Most vision care

Most dental care

Personal aid services to help you

stay in your home

Most nursing home and other

long-term care

Assisted living

Page 10: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

1010

Health Care Costs in Retirement Fall Into Two Categories

Unpredictable

PredictableTHE

THE

1

2

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1111

The Predictable: Medicare and Medigap

Source: T. Rowe Price estimates based on projected 2019 Medicare premiums and data from the Health and Retirement Study (HRS). Health and Retirement Study,

(HRS) public use dataset. Produced and distributed by the University of Michigan with funding from the National Institute on Aging (grant number NIA

U01AG009740). Ann Arbor, MI. All costs are rounded to the nearest hundred. Premium percentage of total health care expenses includes the median percentage

share of individual health insurance premiums (ages 65 and above) for Medicare Parts A, B, D and Medigap.

2019 MONTHLY PREMIUM COSTS

Part A Subsidized premium

Part B $135.50 - $460

Part DVaries by state and plan

Median: $40

Medigap

(supplemental)

Varies by state and plan

Median: $200

81%of total health care

expenses go to

premium costs

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1212

The Predictable: 2019 IRMAA Brackets

Source: Medicare Board of Trustees

INDIVIDUAL MAGI

COUPLES MAGI

PART B PART D

< $85k < $170k $135.50 Premium (varies)

$85k - $107k $170k - $214k $189.60 (40%) Premium + $12.40

$107k - $133k $214k - $267k $270.60 (100%) Premium + $31.90

$133k - $160k $267k - $320k $352.20 (160%) Premium + $51.40

$160k - $500k $320k - $750k $433.40 (220%) Premium + $70.90

>$500k >$750k $460.50 (240%) Premium + $77.40

Page 13: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

13

Retirement Health Care Costs

Source: T. Rowe Price estimates based on projected 2019 Medicare premiums and data from the Health and Retirement Study (HRS). Health and Retirement Study,

(HRS) public use dataset. Produced and distributed by the University of Michigan with funding from the National Institute on Aging (grant number NIA

U01AG009740). Ann Arbor, MI. All costs are rounded to the nearest hundred. Premium percentage of total health care expenses includes the median percentage

share of individual health insurance premiums (ages 65 and above) for Medicare Parts A, B, D and Medigap. Medigap policies bought directly from an insurance

company, an insurance exchange, or group plans provided by AARP are considered for these calculations. Costs of long-term care are not included in the analysis.

2019 ESTIMATED ANNUAL EXPENSES (INDIVIDUAL)

$3,800

$500

$4,700 $4,500

$1,100

$5,800 $5,200

$2,200

$7,300

$6,100

$4,500

$10,200

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Premium Out of Pocket Total

25th Percentile 50th Percentile 75th Percentile 90th Percentile

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1414

Health Care Is A Huge Expense for Employers

.

Source: Mercer National Survey of Employer-Sponsored Health Plans, 2018; PSCA Health Savings Accounts and Retirement Plans, 2017. CDHP is Consumer

directed health plan.

▪ 75% of employers view HSAs as part of a retirement benefits strategy

$12,486

$11,580

$10,357$10,826

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

PPO HMO HSA-eligibleCDHP

PPO with deductiblegreater than $1,000

AVERAGE MEDICAL PLAN COST PER EMPLOYEE (LARGE EMPLOYERS)

Page 15: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

How to Save / Plan for Health Care Expenses

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1616

No One Option is Perfect

Reflects Roth and pretax employer-sponsored plans (as opposed to IRAs) unless noted. Advantages of account type (relative to the others) shown in blue. All three

types grow tax-deferred. These are not the only options when it comes to saving for healthcare and/or medical related expenses in retirement. Note that while HSAs

are structured for the individual to save or invest for health costs, this is not the intended primary purpose of a defined contribution plan or IRA. Individuals should

evaluate their health coverage needs and other factors before seeking tax benefits of an HSA. Source: IRS documents. 1Federal income taxes. State laws vary. HSA contributions through an employer may be excluded from FICA taxes. 2Subject to income limitations on participation

(Roth IRA) or deductibility (Traditional IRA). Amounts do not include catch-up contributions. 3Penalties end at age 65 for HSA and generally at age 59 ½ for Roth and

Pretax. Distributions of contributed assets from Roth accounts are tax- and penalty-free. 4Early distributions from retirement plans or IRAs may be subject to taxes

and penalties unless an exemption applies. 5Once you reach age 59 ½ with an account that has been opened for at least five years, you may qualify for tax-free

withdrawals of both Roth IRA contributions and any accumulated earnings. 6Roth IRAs have no RMDs for original owner.

For additional information please reference T. Rowe Price “Using Health Savings Accounts Wisely”.

ACCOUNT TYPES PRETAX ROTH HSA

ContributionsExcluded from

taxable income1 Not excluded1 Excluded from taxable income1

2019 Maximum AnnualContributions2

$19,000 retirement plan$6,000 IRA2

$19,000 retirement plan$6,000 IRA2

$3,500 individual$7,000 family

Early Distribution Penalty3 10% 10% 20%

Early Distributions Limited access4 Limited access4 Qualified medical expenses(QME): No tax or penalty

Taxes on Distributions Ordinary rate Tax-free if qualified5 Tax-free if used to pay QME

Required MinimumDistributions (RMDs)

Begin at the later of age 70½ or retirement

Begin at age 70½ forretirement plans6 None

Tax Treatment forNon-spouse Heirs

Ongoing tax deferral(subject to RMD requirement)

Ongoing tax-free(subject to RMD requirement)

Value immediately subject to ordinary income tax

Advantages

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1717

Employers’ Adoption of High Deductible Health Plans

*Consumer-directed health plan (CDHP). HSAs require the use of a high deductible health plan (HDHP), which is a specific type of CDHP.

Source: Mercer National Survey of Employer-Sponsored Health Plans.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014 2015 2016 Expect to offerin 2019

Small employers (10-499 employees)

All large employers (500+ employees)

Jumbo employers (20,000+ employees)

PERCENT OF EMPLOYERS OFFERING/LIKELY TO OFFER CDHP*

(BY EMPLOYER SIZE)

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1818

$3 $5 $7 $9 $11 $14$17

$21$26

$32$37

$44$50

$58

$3

$4

$6

$8

$10

$14

$17

$0

$10

$20

$30

$40

$50

$60

$70

$80

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (est)

2020 (est)

Deposits Investments

HSA Asset Growth

Source: Devenir Research, 2018 Year-End HSA Market Statistics & Trends Executive Summary

TOTAL HSA ASSETS (BILLIONS)

$1.7$3

$5 $7$10

$64

$54

$45

$38

$30

$24

$19

$16$12

$75

Page 19: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

1919

HSA Overview

KEY FACTS (2019) Individual Family

Eligibility: Under 65, Enrolled in HDHP

HSA Annual Contribution Limit $3,500 $7,000

HSA per-person catch-up contribution

limit (age 55)$1,000 $1,000

Minimum deductible for HDHP $1,350 $2,700

Maximum out-of-pocket expense for

HDHP$6,750 $13,500

Source: IRS documents

TAX-PREFERRED SAVINGS FOR INDIVIDUALS COVERED BY

HIGH-DEDUCTIBLE HEALTH PLANS (HDHP)

▪ Triple tax advantage

▪ Contributions excluded from income

▪ Assets grow tax-deferred

▪ Withdrawals for qualified medical expenses are tax-free

▪ Portable and not “use it or lose it”

Page 20: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

2020

HSA Contributions

Source: PSCA Health Savings Accounts and Retirement Plans, 2017; includes employers who have HSAs. Devenir Research, 2018 Year-End HSA Market Statistics

& Trends Executive Summary.

AVERAGE ANNUAL

HSA CONTRIBUTIONEmployer Contributions

▪ 81% contribute to HSAs

▪ 39% front-load contributions at the

beginning of the year

▪ 30% contribute with each pay check$839

$1,872

Employer Employee

Page 21: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

2121

Profile of HSA Investments

Source: 2018 Year-End Devenir HSA Research Report

39%

12%9%

9%

8%

7%

7%

6% 1%1%

Large-Cap

Lifestyle/Allocation

Small-Cap

International

Money Market

Bonds/Fixed Income

Mid-Cap

Target Date

Real Estate

Other

AVERAGE ALLOCATION (PARTICIPANTS AGE 60+)

Page 22: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

2222

VERY BAD

Employee HSA Scenarios

HSA’S CAN HAVE A RANGE OF OUTCOMES

SUBOPTIMAL

Leaving large balance to

non-spouse beneficiary

▪ Ordinary tax for heirs

FAIR

Using for nonqualified

expenses after age 65

▪ Pay ordinary tax

Early nonqualified

distributions

▪ 20% penalty

Page 23: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

2323

Employee HSA Scenarios

GOOD

Contribute the amount

of medical expenses

for current year

(only spending account)

BETTER

Contribute more than

expected medical

expenses for year and

build cushion by only

using assets for large or

unusual medical

expenses

BEST

Contribute at or near

the maximum and

invest for long term

▪ Full triple-tax benefit

HSA’S CAN HAVE A RANGE OF OUTCOMES

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2424

HSA Appropriateness

Source: T. Rowe Price “Using Health Savings Accounts Wisely. “High-Deductible vs. Low-Deductible Plans”; “HSA Contributions Based on Potential Qualified

Medical Expenses”; “Contribution Strategy Example”. Examples are for illustrative purposes only and are generic in nature.

FOR PEOPLE WITH A CHOICE OF TRADITIONAL AND HIGH-

DEDUCTIBLE HEALTH PLANS

Couple with young kids,

high medical expenses and

limited saving capacity

KEY DECISION FACTORS:

▪ Will HDHP cost more than a

traditional plan?

▪ Would they really invest in

HSA or use it for annual expenses?

LIKELY CONCLUSION:

▪ HDHP/HSA not beneficial

Healthy empty nesters

in high tax bracket

KEY DECISION FACTORS:

▪ Factoring tax rate and time

horizon, does value of HSA tax

treatment outweigh risk of high

out-of-pocket costs?

LIKELY CONCLUSION:

▪ Choose HDHP and invest the

maximum allowed in HSA

Healthy, successful young

person with saving capacity

KEY DECISION FACTORS:

▪ Given young age, is there a

possibility of accumulating too

much in an HSA?

▪ Are there other financial

priorities to consider?

LIKELY CONCLUSION:

▪ Invest in HSA, but possibly not

at maximum level

Page 25: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

Why Include Health Care in Retirement Savings Strategy

Page 26: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

2626

Considerations For Adding HDHP

Potential Action Items

▪ Review HSA providers

▪ Educate employees periodically on health care savings options

▪ Explore ways to provide employees with HSA investment

education or guidance

Review Current Health Care Offerings

▪ Cost

▪ Usage

▪ Employee Input

AssessDemographics

▪ % younger, healthier

workforce

▪ % HNW employees

Page 27: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

2727

Ample Retirement and Health Care Saving

Savings Goals

Reframe Your Benefits Philosophy

Financial Wellness

Recruit: Attract the best employees

with a comprehensive and flexible

benefits package

Retain: Healthy executives appreciate the potential HSA tax advantages

Retire: HDHP/HSA may provide

added financial support for retirees

without a DB/Pension.

RETIRE

Page 28: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

2828

HSAs Paired with a HDHP Can Be Part of a Competitive Benefits Package

1Mercer National Survey of Employer-Sponsored Health Plans. Small employers have 10-499 employees; large employers 500-19,999 employees; jumbo employer is

20,000+ employees. 2 ©Society for Human Resource Management (SHRM), Talent Acquisition Benchmarking Report, 2017. 3 T. Rowe Price/Brightwork Partners, LLC,

Plan Sponsor Pulse Survey, April 2016. Survey of 155 401(k) plan sponsors with assets of $100 million or more, conducted online, March 22–April 1, 2016. 4Employee

Financial Wellness Survey, PwC US, 2018.

Retain

▪ $4,425 is the average

cost of onboarding a

new hire2

▪ 69% of employers

consider retaining

employees a major

objective3

Retire

▪ 61% of employees think

health care costs will

impact their retirement4

– 59% Millennials

– 64% Gen X

– 57% Baby Boomers

▪ Employees delaying

their retirement is a

significant financial

burden for employers

Recruit

▪ Potential to lose talent to

employers who already

offer HSA

– 87% of jumbo employers,

and 72% of large employers

plan to offer HSAs

by 20191

▪ Differentiate your company

by offering HSAs

– 34% of small employers

plan to offer HSAs

by 20191

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2929

Considerations for Plans With HDHP

Arrange for fair and balanced reviews of health care savings

options, strategies, and benefits to employees

Review education materials to ensure they are clear and

comprehensive

Connect the health care conversation to retirement and

financial wellness

Evaluate adoption and usage data

Explore ways to provide employees with HSA investment

education or guidance

Page 30: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

3030

Current Health Care Savings Advice

Source: T. Rowe Price Retirement Savings and Spending study, 2018

of those saving to fund health care expenses in retirement would

benefit from advice

74%Of people who have used an advisor have received

advice from them on health care expense planning

16%Only

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3131

Summary

Health care expenses are very top of mind

▪ Huge concern for employees; with waning confidence

▪ Biggest (and growing) benefits expense for employers

▪ Consist of predictable (Medicare) and unpredictable (long-term care)

Several savings options exist

▪ Pretax and Roth contributions

▪ Health Savings Accounts (HSAs)

▪ Increased savings levels

Health Savings Accounts (HSAs)

▪ Increasing employer and employee adoption

▪ Offer triple tax advantage

▪ Appropriate for many—but not all—who have access to them

Considerations for plan sponsors

▪ Evaluate and analyze work force health care needs and options

▪ Reframe your benefits package

▪ Work with your retirement plan advisor to provide transparent education and communication

▪ Explore holistic financial guidance

Page 32: IS THERE A CURE-ALL SOLUTION? Planning for Retirement Resourc… · Health Care Is A Huge Expense for Employers. Source: Mercer National Survey of Employer-Sponsored Health Plans,

THANK YOU

C1QCTP2Y3

201904-823956

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CONFIDENCE, and the Bighorn Sheep design are, collectively and/or apart,

trademarks of T. Rowe Price Group, Inc.

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