Contrary To Reports, 78% Of Healthcare Employers Anticipate No Change To Their Defined Benefit Plan, USA

Main Category: Public Health
Also Included In: Seniors / Aging
Article Date: 26 Sep 2008 - 6:00 PDT

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Just one year after the IRS issued an extensive overhaul of 403(b) regulations, a recent study reveals that they are impacting healthcare employers' decisions about their retirement plan administration even more so that the Pension Protection Act of 2006 (PPA). The survey, Retirement Plan Trends in Today's Healthcare Market - 2008, was conducted by the American Hospital Association (AHA) and Diversified Investment Advisors, Inc. (Diversified).

According to the survey, currently in its sixth year, more than double the number of plan sponsors replaced an investment manager or record keeper - 19% and 20% respectively - based on the 403(b) regulations as compared with just 8% who did so because of PPA. Fourteen percent of healthcare organizations also plan to reduce the number of providers they use for plan management, a 4% increase from last year.

In addition, 51% of healthcare plan sponsors are creating information sharing agreements for 403(b) contract exchanges, which allow plan sponsors and providers alike to monitor IRS requirements applicable to plan assets. Among other changes spurred by the revised 403(b) regulations, 48% of plan sponsors are developing written plan documents; 28% are consolidating plan vendors; 22% are implementing new distribution restrictions, but only 3% are planning to terminate their 403(b) plans.

"As result of both the new 403(b) regulations and the PPA, healthcare retirement plan sponsors are more aware of the costs associated with their plans, as well as areas for potential risk, which has prompted them to make changes in their plans' administration, as our survey confirms," noted David Ray, vice president and not-for-profit practice leader at Diversified. "But Retirement Plan Trends in Today's Healthcare Market - 2008 also underscored how much healthcare plan sponsors' rapid response to the revised 403(b) regulations and to the PPA before them demonstrates their commitment to helping their employees prepare for retirement."

But the survey also underscored how despite what has been widely reported, one important aspect of retirement plans is not, in fact, changing. According to the AHA/Diversified study, 78% of respondents who sponsor a defined benefit plan do not anticipate making any changes to their plan. In addition, the survey revealed that the percentage of employers that offer a traditional DB plan is unchanged from a year ago.

Of the 22% of respondents that are making adjustments to their plan - with the primary driver being the volatility of cash funding -- 9% will enhance their defined contribution plan to compensate for defined benefit plan amendments; 8% intend to freeze their plan; and 2% are moving from a traditional defined benefit plan to a hybrid structure.

Among the other key findings of this year's Retirement Plan Trends in Today's Healthcare Market survey are:

- Automatic services and investment solutions have grown in popularity: the implementation of auto enrollment features increased by 6% to 29% in the last year; while the incidence of plans using automatic escalation increased to 16% from 11%. One-half of plan sponsors now offer managed accounts, up from 40% a year ago.

- Plan sponsors are increasingly adding funds to their investment line up: the percentage of plans offering 16 to 20 funds rose from 24% last year to 27% this year. One-third of plan sponsors now offer more than 20 funds, but there are consequences for offering too much choice; plans with six to ten investment options experience a median participation rate of 80% compared with just 70% in plans that offer more than 20 options.

- Despite speculation that plan loans would increase in turbulent financial times, the percentage of participants with retirement plan loans outstanding (7%) has remained relatively flat over the last three years. The median outstanding loan balance is $4,868.

- Communicating retirement plan information via Internet/intranet sites has become more popular than via telephone/voice response systems.

- Nearly two-thirds of healthcare plan sponsors (66%) report their organizations' 403(b) plan have the greatest number of participants, while 31% said that their 401(k) plans have the greatest number of participants.

- The incidence of outsourcing a variety of administrative functions associated with their retirement plans among plan providers remained essentially the same as reported in the 2007 Diversified/AHA study. In 2008, respondents said they outsourced loans (52%); hardship withdrawals (49%); qualified domestic relations orders (44%), and enrollment (32%).

- Improving employee education consistently tops the list of anticipated plan changes, with 84% of respondents planning to do so. Employers' desire to reduce the number of providers they use for plan management rose 10% this year to 14%. Offering financial planning (24%); adding investment options (22%) and consolidating record keeping for multiple plans (10%) were also cited.

"The mounting popularity of automatic services and continued need to outsource certain retirement plan administration functions truly underscore how much hospitals recognize the need to dedicate human and financial resources where they can be most effective - first and foremost the delivery of care," said Amy Goble, vice president of account management, AHA Solutions, Inc. "But even with this mandate, the survey also shows how deeply committed they are to their employees' financial future."

"Retirement Plan Trends in Today's Healthcare Market continues to monitor the ever-changing healthcare retirement plan market and has become an invaluable industry benchmarking tool that allows employers and plan providers to evaluate how they can work together to provide the most competitive and effective solutions given a changing regulatory environment and today's dynamic economic conditions," said Ray.

Retirement Plan Trends in Today's Healthcare Market - 2007 is the sixth annual survey conducted by Diversified and the AHA. The study, based on 2007 data, focuses on healthcare organizations' defined contribution and defined benefit retirement plan characteristics unique to healthcare organizations. A total of 311 healthcare plan sponsors nationwide responded to the survey. To request a copy of the survey report, please visit http://www.aha-solutions.org or call 800-242-4677.

About AHA

The American Hospital Association (AHA) is a not-for-profit association of healthcare provider organizations and individuals that are committed to the health improvement of their communities. The AHA is a national advocate for its members, which includes nearly 5,000 hospitals, healthcare systems, networks, and other providers of care. Founded in 1898, the AHA provides education for healthcare leaders and is a source of information on healthcare issues and trends. For more information, visit the AHA Web site at http://www.aha.org.

About AHA Solutions, Inc.

AHA Solutions, Inc., a subsidiary of the American Hospital Association, whose purpose is to identify and/or develop products and services that help hospitals and healthcare organizations operate more effectively and efficiently. As the only area of the AHA with rights to award the AHA Endorsement, the company relies on its due diligence and healthcare industry knowledge to provide resources to healthcare leaders in the areas of Human Resources, Finance, Revenue Cycle Management, Patient Flow and Technology. For more information, contact AHA Solutions at 800 242-4677 or visit http://www.aha-solutions.org.

About Diversified Investment Advisors, Inc.

Diversified Investment Advisors, Inc. is a national investment advisory firm specializing in retirement plans. The company's expertise covers the entire spectrum of defined benefit and defined contribution plans, including: 401(k) and 403(b) (Traditional and Roth); 457; non-qualified deferred compensation; profit sharing; money purchase; cash balance and Taft-Hartley plans; and rollover and Roth IRA. Diversified helps more than 1.3 million participants save and invest wisely for and throughout retirement.

Headquartered in Purchase, NY, the company's regional offices are located in Arkansas, California, Illinois, Iowa, Louisiana, Maryland, Massachusetts, New York, North Carolina, Ohio, Oregon, Pennsylvania, Texas and Wisconsin. To learn more, visit http://www.divinvest.com.

Diversified Investment Advisors, Inc.