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DC Business Evolves In U.S.

The retirement ecosystem is changing rapidly and a T. Rowe Price study has found the U.S. consulting and advisory community is evolving their businesses to address both obstacles and new opportunities. In partnership with Schaus Group, its ‘Defined Contribution Consultant Research Study’ revealed key themes, including greater insight into environmental, social, and governance (ESG) adoption, support for the continued evolution of target date investments and retirement income solutions, and growing interest in financial wellness programs, especially in response to the COVID pandemic. While there is broad interest in ESG, the majority of consultants report plan sponsors are looking for further clarity on the Department of Labor (DOL) proposed guidelines before making ESG investments a part of DC plan investment options. With respect to implementation of ESG, 40 per cent of study respondents indicated preference for actively-managed ESG investment strategies. With respect to target date solutions, consultants strongly support an increased focus on collective investment trust (CIT) based target dates and the pursuit of blend solutions that deliver the benefits of both active and passive investment management. Of note, these cost containment trends received greater support than simply increasing the use of passive investment management. Addressing greater financial wellness, 76 per cent of consultants report that plan sponsors signaled greater interest in emergency savings and 60 per cent report greater interest in debt management. In contrast, most respondents reported fewer than 25 per cent of their plan sponsor clients currently offer emergency savings programs. More positively, 83 per cent of plan consultants expect this figure to increase in the next three to five years.

Pandemic Impacted Claims Cost Assumptions

The COVID-19 pandemic has impacted claims costs in multiple and varying ways, says an Eckler ‘GroupNews.’ While there was a short-term negative impact primarily driven by hospitalizations for the treatment of COVID-infected patients, for example, it was largely offset by reduced access to, and a decrease in public desire for, healthcare services during the lockdowns in 2020. The net result is an abnormal claims utilization pattern for most non-drug health and dental plans in the past two years (especially in 2020). Whether for a short-term budgeting exercise or a post-retirement benefits valuation with projected costs, the claims utilization patterns brought on by COVID-19 have resulted in several challenges when it comes to assumptions setting. Typically, an actuary will rely on the last few years of actual claims experience and project a trend assumption that reflects anticipated short- and long-term economic influences. However, due to the COVID-19 pandemic, there are many other factors influencing claims – as well as in different directions – which has resulted in greater difficulties in estimating experience in the short- to medium- term based on recent experience. For private health and dental plans, the pandemic’s full impact on claims experience may not be seen for years to come. Short-term claims experience will vary by plan due to key risk factors including industry, demographics, and plan design. In setting future claims cost assumptions for budgeting and longer-term actuarial valuations, relying more on pre-pandemic claims experience to disregard all or some of 2020 experience, and building in appropriate margins for claims fluctuation risk, will likely result in a more reliable projection. It is important to continue to closely monitor evolving experience in 2022 and beyond to consider what further adjustments might be warranted, it says.

For details on these stories, visit www.bpmmagazine.com

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