Texas Association of Public Employee Retirement Systems ... · • State and Local Governments Have Economic Incentives ... p. 8. Page 2 TEXPERS Outlook July 2014 GASB Compliance:

Texas Pension Funds Rank Among Best in Nation, Urban Institute Finds The Urban Institute, a left-of-center think tank, has released a state-by-state survey of the state of public pension funds and ranked Texas’ plans that cover general employees in counties, districts and municipalities as among the best public plans in the nation. The study includes a pension report card and an interactive map grading state-administered retirement plans on their financing, how much retirement security they provide to short- and long-term employees, and the workforce incentives they create for younger, older and mid-career employees. The results are based on the Urban Institute’s State and Local Employee Pension Plan (SLEPP) database, which includes detailed state-by-state information on plan rules for public school teachers, police officers and firefighters and general state and local government employees. The results are presented via a graphically pleasing Web interface to display the pension information. The data is available at: http://datatools.urban.org/features/SLEPP/index.html. The report was compiled based on an exhaustive analysis of 660 state-administered pension plans. The plans were graded on how well they place short- and long-term employees on a path to retirement security, how well employee incentives help government attract and retain a productive workforce, and whether the plans set aside enough funds to finance promised benefits. While Texas ranked relatively highly among all the nation’s pension plans, the study found that many of the nation’s 19 million state and local government workers do not have a secure retirement nest egg. It found that only 19% of the plans studied enable state and local government workers hired at age 25 to accumulate any employer-financed pension benefits within the first 10 years of employment. For teachers, the figure is just 14%. It also found that in 22% of all plans, age-25 hires must work more than 25 years before their future pension benefits are worth more than their plan contributions. On the Web at: http://www.urban.org/publications/904623.html.

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July 2014

1225 North Loop West, Ste. 909Houston, Texas 77008Phone: (713) 622-8018Fax: (713) [email protected]

BOARD OF DIRECTORS

PresidentPAUL R. BROWNBig Spring Firemen’s Relief & Retirement Fund

First Vice PresidentSHERRY MOSEHouston Municipal Employees Pension System

Second Vice PresidentTYLER C. GROSSMANEl Paso Fire & Police Pension Fund

SecretaryJOHN D. JENKINSDallas Employees’ Retirement Fund

TreasurerEYNA CANALES-ZARATECity of Austin Employees’ Retirement System

Board Member ANDY BARBOZACorpus Christi Firefighters’ Retirement System

Board Member JOSE CAVAZOSDallas Area Rapid Transit Retirement Plan and Trust

Board Member DENISE CRANDONDallas Area Rapid Transit Retirement Plan and Trust

Board Member PETE MORINAustin Police Retirement System

Board Member LARRY A. REEDSan Antonio Fire & Police Pension Fund

Board Member JIM SMITHSan Antonio Fire & Police Pension Fund

ASSOCIATE ADVISORS

EDMUND M. GRANTAllianceBernsteinNICHOLAS STANOJEVBNY Mellon DELIA M. ROGESInvescoLINDA J. JORDANMesirow FinancialJASON WIDENEROFI Institutional Asset ManagementDAVID M. SCHILLERState Street Global AdvisorsKEVIN FETZERWilliam Blair & CompanyRICHARD C. BADGERWunderlich SecuritiesSTAFF

Executive DirectorMAX PATTERSONContributing EditorMATT AUKOFER

TEXPERS OUTLOOKIssues ImpactIng publIc pensIon Funds

Texas Association of Public Employee Retirement Systems

In this issue:• Texas Pension Funds Rank Among Best in Nation, Urban Institute Finds ... p. 1• GASB Compliance: Obtaining and Auditing Key Numbers ... p. 2• Guidance Offered on GASB Statement 68 ... p. 2• Recent Events Make Retirement Readiness More Difficult for Public Employees ... p. 3• Funded Status of Public Plans Remains Largely Unchanged in 2013 ... p. 3• Economist Examines Cuts to Public Pensions and the Impacts on Workers ... p. 3• More Public Pension Plans Are Exploring Shared-Risk Practices ... p. 4• Some States Adopt Nontraditional Alternatives to Defined Benefit Pension Plans ... p. 4• Court Rules Benefit Plan is Governmental Plan, Even Though Its Employees ... p. 5• Apply ERISA-like Framework to Public Pensions? One Law Professor Thinks So ... p. 5• New York City Pensions Vote to Ban All Brokers Known as ‘Placement Agents’ ... p. 6• Local Governments in Tennessee Must Make Full Annual Required Contributions ... p. 6-7• Federal Bankruptcy Judge in Ky. Allows Agency to Exit State Retirement System ... p. 7• State and Local Governments Have Economic Incentives ... p. 8

Page 2 TEXPERS Outlook July 2014GASB Compliance: Obtaining and Auditing Key Numbers State and local government employers who participate in multiple-employer defined benefit pension plans – and the governments’ auditors – may have difficulty obtaining the data required by the Governmental Accounting Standards Board’s (GASB) new financial reporting rules for public pension plans. A new white paper prepared by the American Institute of Certified Public Accountants (AICPA) State and Local Governments Expert Panel (SLGEP) provides best-practice solutions to address accounting and auditing issues for government employers under GASB Statement No. 67, Financial Reporting for Pension Plans, and Statement No. 68, Accounting and Financial Reporting for Pensions. The paper focuses on so-called “agent plans,” in which the assets of the employers are pooled for investment purposes but separate accounts are maintained for each individual employer. These are essentially a collection of single-employer pension plans that are commonly administered. Employers that participate in agent plans may face challenges obtaining all the necessary information to support the specific pension amounts they must report, including net pension liability, deferred outflows of resources, deferred inflows of resources, and pension expense On the Web at: http://www.aicpa.org/In te res tAreas /Governmenta lAudi tQua l i ty /Resources/gasbmatters/DownloadableDocuments/AICPASLGEP_Agent_ER_Reporting_Whitepaper.pdf.

Guidance Offered on GASB Statement 68, Accounting and Financial Reporting for Pensions In a June 10 compliance alert, Segal Consulting has summarized the latest implementation guide on pension plan financial reporting issued by the Governmental Accounting Standards Board (GASB)

GASB has issued an implementation guide for Statement 68, Accounting and Financial Reporting for Pensions, the agency’s second implementation guide

on pension plan financial reporting. Last year, it issued an implementation guide for Statement 67, Financial Reporting for Pension Plans. Statement 68 was published in June 2012 and eliminates the current measure of Net Pension Obligation (NPO) and defines a new method of calculating pension expense for public sector employers. After providing background on the standard, the compliance alert discusses information in the implementation guide that Segal Consulting believes to be most noteworthy. Segal, a privately-held employee-owned actuarial and consulting firm, then identifies and discusses those aspects of the guidance, including: the scope and applicability of Statement 68; the types of defined benefit plans and employers that are affected; special funding situations; recognition and measurement in financial statements; and guidance for cost-sharing employers. On the Web at: http://www.segalco.com/publications-and-resources/public-sector-publications/compliance-alert/archives/?id=2561.

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July 2014 TEXPERS Outlook Page 3Recent Events Make Retirement Readiness More Difficult for Public Employees The International Foundation for Retirement Education has produced a white paper for the National Association of Government Defined Contribution Administrator (NAGDCA) intended to assist state and local government employees with their retirement readiness. The paper, “Improving Retirement Readiness for State and Local Government Employees,” states that increasing costs and the economic climate over the past decade have combined to make it much more difficult for public-sector employers to meet their current and future pension obligations. Public employers have been adjusting their retirement plan benefits offerings and shifting more of the risk to their employees. Changes in benefits, increases in medical expenses and increasing life expectancy mean that “public sector employers are facing a significant challenge to ensure employees recognize their new retirement readiness responsibilities,” the report states. Without assistance, most public employees will not able to clearly fathom their personal risks and make informed retirement planning decisions, the report claims. If that is the case, public-sector employees will be in jeopardy of not having adequate resources in retirement, and many may ultimately become partly dependent on their former employers in the form of social assistance. On the Web at: http://www.nagdca.org/documents/Improving_Retirement_Readiness_for_Public_Employees_White_Paper_2014_FINAL.pdf.

Funded Status of Public Plans Remains Largely Unchanged in 2013 The funded status of state and local pensions remained unchanged at 72% in 2013, despite strong stock market performance during the year, according to new research. The main reason that there was basically no change was that asset values are generally averaged over a five-year period. In the case of this research, the reporting period averaged asset values over 2009-2013, and 2009 included disastrous returns due to the economic recession. However, 2014 will be a year of big change, according to the research by the Center for Retirement Research at Boston College. Just as 2009 was about to rotate out of the five-year averaging period to produce a sharp increase in actuarial assets, the Governmental Accounting Standards Board (GASB) is requiring sponsors to replace actuarially smoothed assets with the market value.

With funded ratios based on current market values, recent stock market performance will greatly affect changes in funding. The new GASB proposals also will require some plans – those whose assets are projected to be insufficient to cover future benefits – to use a lower rate to calculate liabilities, according to the report. To get a sense of the impact of the transition to the new funding standards, the report, “The Funding of State and Local Pensions: 2013-2017,” reports projections under both the old and new GASB standards. The report projects that in 2017, public plans should be at least 80% funded, assuming the stock market remains healthy. However, the ratio will be lower if public plans widely adopt a combined rate to discount their benefit promises, the report states. One encouraging sign is that many plan sponsors appear to be paying a larger share of their annual required contribution, the report found. On the Web at: http://slge.org/wp-content/uploads/2014/06/The_Funding_of_State__Local_Pensions_2013-2017.pdf.

Economist Examines Cuts to Public Pensions and the Impacts on Workers In a new report, an economist at the Economic Policy Institute (EPI) attempts to provide tools for assessing and understanding the true underlying health of public pension plans, the history behind actuarial shortfalls, and the impacts on workers and taxpayers of proposed or enacted legislation that reduces pension benefits. “Understanding Cuts to Public Pensions,” a report by economist Monique Morrissey, is organized as a series of 10 steps, although all may not be relevant in every situation. Her report provides a specific example of the percentage change in lifetime benefits, measured in real terms, received by a prototypical worker under four different pension plan changes. It also provides guidance on using alternative measures. “In the past several years, fears that underfunded public pensions are a growing burden on taxpayers have led to calls to cut employer-provided pension benefits through increased employee contributions, increased retirement ages, reduced cost-of-living adjustments (COLAs), or other changes,” Morrissey writes. “But too often news reports on proposed or enacted pension cuts either overplay the rationale behind them, or minimize the impacts on affected workers.” The report focuses on the effects of proposed cuts on a prototypical long-career worker (a hypothetical 30-year worker retiring at age 62), which depend on that worker’s salary at retirement as well as his or her years of service. On the Web at: http://www.epi.org/publication/understanding-cuts-public-pensions/.

TEXPERS OutlookPage 4 July 2014

Some States Adopt Nontraditional Alternatives to Defined Benefit Pension Plans A new article attempts to provide a state-by-state review of nontraditional alternatives to defined benefit (DB) public pension plans, such as hybrid cash balance plans or defined contribution (DC) plans. The article covers the 20 states plus the District of Columbia that either currently sponsor, or plan to sponsor, alternatives to a traditional DB model. It was written by Michael A. Webb, vice president of the Cammack Retirement Group, an investment advisory, consulting and actuarial services provider. The article notes that Texas is composed of several retirement systems. The state currently sponsors a traditional DB plan, and has not enacted any legislation to force a switch to an alternative model. A the same time, two systems – The Texas County & District Retirement System and the Texas Municipal Retirement System – offer cash balance plans for counties, municipalities and some local agencies such as public utilities, the article notes. On the Web at: http://origin.library.constantcontact.com/download/get/file/1102911954578-503/Are+States+Migrating+from+Traditional+Pension+-+A+State-by-State+Review.pdf.

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More Public Pension Plans Are Exploring Shared-Risk Practices The concept of shared risk in public pension plan designs is on the rise in nearly every state, according to a new report by the National Association of State Retirement Administrators (NASRA). Risk-sharing has gained traction since the economic recession as a way to help mitigate funded status volatility and investment and longevity risks. Risk-sharing also is seen as an alternative to the benefit freezes or cuts that legislatures have imposed on underfunded public pensions since the recession, and as a way to potentially defuse criticism of public pension plans. While public plan participants have long been required to contribute to their defined benefit (DB) plans, in most cases, employers have assumed all or most of the investment risk. Today, though, pension plans feature a variety of risk-sharing arrangements. On the extremes, employers might maintain sole responsibility for funding guaranteed benefits, or employees might bear the full obligation to finance their own retirement savings. However, pension plans for state and local government workers tend to have in place risk-sharing practices that fall between these extremes, NASRA found. The typical DB plan that most states offer places some level of financial responsibility and risk on both the employer and the employee. The use of shared-financing and shared-risk have grown in recent years as states have modified required employer and employee contributions, restructured benefits, or both. Some states also have established so-called “hybrid” plans that combine elements of traditional pensions and individual account plans, which contain more risk sharing. One public fund that has implemented an innovative shared-risk approach is the $95.4 billion Wisconsin Retirement System, which was designed from its inception in 1982 to adjust employee contribution rates and reduce or eliminate retirees’ annuity increases depending on certain circumstances. The system was 99.9% funded as of Dec. 31, 2013. The first annuity increases in five years came this spring, following $4 billion in cuts since 2008 when the economic recession hit. In its report, NASRA identifies general types of risk that are present in public-sector retirement plans and analyzes both traditional and new uses of risk-sharing methods enacted by states. “States have developed a wide range of plan designs that allocate risks between employers and employees, in most cases while continuing to retain core elements of public pension plan design that best meet the needs of all stakeholders: mandatory participation, shared financing, pooled investments, benefit adequacy, and lifetime benefit payouts,” the report states. On the Web at: http://www.nasra.org/files/Issue%20Briefs/NASRASharedRiskBrief.pdf.

TEXPERS OutlookJuly 2014 Page 5Court Rules Benefit Plan is Governmental Plan, Even Though Its Employees Are Not Governmental employee benefit plans are exempt from ERISA, right? This has long been considered a truism. But what about an employee benefit plan of an entity affiliated with a governmental entity, but whose employees are not government employees? In a recent court case, Gunn v. United of Omaha Life Insurance Company, a court in Florida grappled with just such a hybrid entity. Halifax Hospital Medical Center, a county hospital in Florida, created a separate non-profit entity known as Halifax Staffing, Inc., or “Staffing, Inc.,” to provide staffing and management to the Hospital. The hospital’s employees technically worked for Staffing Inc., but the hospital was its sole client. In connection with the creation of Staffing, the hospital requested and received an opinion from the Florida Attorney General that employees of Staffing were not state employees covered by the Florida Retirement System. The hospital created Staffing for the purpose of moving its employees from the Florida Retirement System into a self-funded retirement program. Every person that worked at the hospital, including the plaintiff, David Gunn, was technically employed by Staffing. Staffing provided certain employee benefits, including long-term disability (LTD) benefits, funded by an insurance policy issued by United of Omaha. Gunn, a Staffing employee, became disabled and submitted a claim for LTD benefits, which United of Omaha denied. Gunn filed a lawsuit in state court, seeking his LTD benefits under the policy, contending that Staffing was an “agency or instrumentality” of the public entity hospital. United of Omaha removed the case to federal court, on the grounds that Gunn’s cause of action was governed by ERISA. Gunn moved to remand the case to state court, arguing that the plan was not subject to ERISA based upon the “governmental entity” exemption. The Magistrate Judge agreed and the District Court affirmed and remanded the case to state court. A governmental plan is a plan that is established for its employees by the federal government, the state government “or any political subdivision thereof, or any agency or instrumentality of the foregoing.” While there was not much question that the hospital was a governmental entity, the fact that Staffing, Inc.’s employees were not state employees made for a trickier question as to whether Staffing, Inc.’s plan was governed by ERISA. The Magistrate Court recommended that Staffing Inc.’s plan be deemed a governmental plan exempt from ERISA. The District Court concurred with the Magistrate’s approach, and ordered a remand to state court. On the Web at: http://www.erisaboard.com/attachment.php?s=9d6c316d1a911f116a38db348590b246&attachmentid=3662&d=1400852759.

Apply ERISA-like Framework to Public Pensions? One Law Professor Thinks So As a result of a number of municipal bankruptcy proceedings involving underfunded public pension funds, government officials, employees and retirees are grappling with many cases of litigation that could determine the future of American public pensions. A new paper by Paul M. Secunda, a professor of law at Marquette University Law School, examines the current status of pension litigation at the federal, state and local levels of government. The paper notes that no pension litigation exists at the federal level right now, but there has been a lot of litigation involving state and local pensions over the last few years, “with diverse outcomes.” The article discusses the federal employee pension system in the United States, then considers one state’s (Wisconsin’s) recent experience with pension reform legislation and litigation, and one city’s experience (Detroit) with the municipal bankruptcy process. The focus is to illustrate emerging trends in public pension litigation that are currently playing out throughout the United States. Although ERISA is far from perfect in regulating private-sector pension plans in the United States, Secunda says it nevertheless has provided uniform standards for occupational retirement plans. In order to replicate that same consistency, Secunda proposes a hybrid approach that seeks to avoid some of the pitfalls of previous public pension reform proposals. By applying ERISA only to federal pension plans, and by permitting the states to adopt uniform, state-wide pension legislation, public pension plans can take advantage of what the author calls a proven pension framework that could make future underfunding and fiduciary lapses less likely. On the Web at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2443147.

Page 6 TEXPERS Outlook July 2014New York City Pensions Vote to Ban All Brokers Known as ‘Placement Agents’ The boards of trustees of all five New York City public pension plans have passed a resolution barring middlemen known as “placement agents” from brokering business with the city’s $150 billion retirement system or participating in any of the system’s investment transactions. The resolution became effective immediately, according to City Comptroller Scott Stringer. Less than a month after taking office on Jan. 1, he announced his plan to outlaw the use of these intermediaries as the first of a six-point ethics reform package for the pension system. Following a three-year investigation, New York’s state attorney general concluded in 2010 that “the use of placement agents to obtain public pension fund investments is a practice fraught with peril and prone to manipulation and abuse.” Several other state attorneys general and the U.S. Securities and Exchange Commission reached similar conclusions following their own investigations. The use of placement agents erupted in scandal in 2009, when two top aides to then-state Comptroller Alan Hevesi were arrested for running a massive pay-to-play scheme involving state pension fund investments. In 2011, Hevesi was sent to jail for accepting nearly $1 million in cash, gifts and campaign contributions for steering $250 million in state pension money. “The passage of an ironclad ban on placement agents for all transactions involving the New York City Pension Funds was long overdue,” Stringer said in a statement. “Ending the involvement of intermediaries in pension funds’ transactions will ensure that the integrity and independence of our investment decisions are beyond reproach and without conflict.” The New York City Pension Funds system includes five retirement pools: New York City Employees’ Retirement System, Teachers’ Retirement System, New York City Police Pension Fund, New York City Fire Department Pension Fund, and the Board of Education Retirement System. The original ban on private equity placement agents dates back to April 2009. The ban applies to all prospective investments made by any of the five pension funds. It is part of a six-point reform package for the operations of the Comptroller’s Office Bureau of Asset Management and the pension funds.

On the Web at: http://www.reuters.com/article/2014/06/13/buyouts-nycpensionfunds-idUSL2N0OU1LC20140613, http://comptroller.nyc.gov/newsroom/new-york-city-pension-funds-enact-placement-agent-ban/, http://comptroller.nyc.gov/newsroom/comptroller-scott-m-stringer-unveils-comprehensive-ethics-and-reform-plan-for-comptrollers-bureau-of-asset-management/, and http://www.ai-cio.com/channel/Manager_Selection/_Ironclad__Ban_on_Placement_Agents_for_NYC_Pensions.html.

Local Governments in Tennessee Must Make Full Annual Required Contributions to Pensions Tennessee Gov. Bill Haslam has signed into law the Public Employee Defined Benefit Financial Security Act of 2014, designed to ensure that Tennessee local governmental entities fully pay their annual required contributions (ARC) to their public employee pension plans. The law, believed to be the first of its kind in the nation, is being hailed as a concrete way to protect the financial stability of local governments and to protect state employees’ pensions. It affects local government pension funds that do not participate in the $40 billion Tennessee Consolidated Retirement System (TCRS). Fitch Ratings hailed the law as a way to improve public pension fund sustainability and said it could serve as a model for other states that want to stabilize their public employee pension plans. The law requires local governments to contribute 100% of the “actuarially determined annual required contribution that incorporates both the normal cost of benefits and the amortization of the pension plan’s unfunded accrued liability.” Under the law, local government entities that have not been paying 100% of their ARC will have six years to gradually ramp up their yearly payments. If local government entities fail to pay 100% of the ARC after that phase-in period, the state will have the authority to withhold money it provides to those governments and use it to make the required payments. Previous state law had required that the approximately 500 local governmental entities in the TCRS to pay 100% of the yearly ARC. Local government entities in TCRS have been subject to possible state intercept of funds if they failed to pay 100% on the ARC. As a result, TCRS has been ranked by various organizations as having one of the best funded pension plans in the nation. The new legislation simply applies these practices to local government pension plans that are not already in TCRS.

Continued on p. 7

July 2014 Page 7

On the Web at: http://www.tn.gov/sos/acts/108/pub/pc0990.pdf, http://finance.yahoo.com/news/fitch-tn-pension-law-improves-164800507.html and http://www.pionline.com/article/20140529/ONLINE/140529850/new-tennessee-law-requires-full-pension-contributions-by-local-governments.

Tennessee continued from p. 6

Federal Bankruptcy Judge in Ky. Allows Agency to Exit State Retirement System A federal bankruptcy judge in Kentucky has ruled that a community mental health center serving Louisville is permitted to leave the $15.5 billion Kentucky Retirement System (KRS) due to rising pension costs, which the court deemed as an unsustainable financial burden for the mental health center known as Seven Counties Services. The ruling could set a precedent and clear the way for other financially strapped mental health centers and quasi-governmental agencies across the state to avoid rising pension costs and exit the KRS, news reports speculated. The judge found that Seven Counties qualifies as a private, non-profit corporation – rather than a governmental unit – and therefore can move forward on its Chapter 11 bankruptcy case without state permission. The court supported its ruling by pointing out that the Kentucky state government already has treated Seven Counties as a private corporation, requiring it to obtain licenses and funding via contracts. Seven Counties has already moved its employees to a 403(b) retirement plan. The ruling essentially allows Seven Counties to withdraw from the KRS, which is severely underfunded. It also sets a potential precedent for 12 other community mental health centers and dozens of quasi-governmental agencies, such as health departments and rape-crisis programs, that are struggling to fund pension obligations. Seven Counties was facing having to dedicate at least 20% of its budget, or $15 million, to pension obligations in 2015. That was up from only $3.5 million in 2007. In a statement, Seven Counties said that over the last eight years, its contribution rate to participate in the KRS has increased almost 33%. The money the center would have to spend on rising pension costs would have reduced the money the center could spend on children and adults living with serious mental illness, individuals with developmental disabilities and people with substance-abuse problems, said Anthony Zipple, president and CEO of Seven Counties. “Serving our consumers is our most important priorities and we must take this action to protect them,” he said.

However, pension officials argued that if all community mental health centers were to leave the system, contribution rates would rise 6.5%, amounting to $2.4 billion in additional costs over 20 years. Any decision as to whether to appeal the ruling will fall to the KRS board of trustees. Sen. Chris McDaniel, a Republican from Latonia who backed a series of proposed pension reforms this year, told the Courier-Journal that he hopes the retirement system will fight the ruling. “It sets a bad precedent when employers can leave the system and leave their unfunded liabilities,” he said. “That will be a huge hit to the commonwealth if the quasis [quasi-governmental agencies] begin to utilize this ruling to get out from underneath their obligations.” On the Web at: http://www.sevencounties.org/images/root/gallery/Chapter_11_Verdit_Press_Release_053114__2_.pdf, http://www.courier-journal .com/story/news/poli t ics/ky-legislature/2014/05/31/seven-counties-can-leave-indebted-ky-pension-system/9806107/ and http://www.plansponsor.com/uploadedFiles/P l a n _ S p o n s o r / n e w s / R u l e s , _ R e g s /SevenCountiesServicesvKentuckyRetSystem.pdf.

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State and Local Governments Have Economic Incentives to Join Federal Healthcare Exchanges under ACA Under the current rules governing the Affordable Care and Patient Protection Act (ACA), state and local governments – as well as other types of employers – could benefit financially if they divested of their current health plans and had their employees obtain insurance from the federal health insurance plan, according to new research. The savings would accumulate even after accounting for penalties (for non-provision of insurance) and employee bonuses (to ensure the shift is cost neutral for them), according to the report by the National Bureau of Economic Research (NBER). “Although the ACA sought to expand coverage by building around and strengthening employment-based insurance, the changes it introduces to the sources and financing of coverage have the potential to reset the playing field entirely,” the report states. “How employers will respond remains to be seen.” The report, “Will Divestment from Employment-Based Health Insurance Save Employers Money? The Case of State and Local Governments,” considered possible reactions by one large employer group with strong motives to reduce the burden of health insurance costs. It projected that state and local governments could save nearly $119 billion over the next 10 years by shifting under age-65-retirees and segments of their workforce to comparable plans on the federal exchanges and Medicaid programs. “Such savings would be gained at the expense of the federal government,” the report adds.On the Web at: http://www.nber.org/papers/w20222.

Page 8 July 2014

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