Harrison, NY, October 05, 2010 --(PR.com
)-- Regulatory changes and the effects of the economic downturn are prompting healthcare employers to alter their retirement plan designs and provisions. According to a new survey of healthcare employers, defined benefit (DB) plan sponsors are making changes to their plan as a result of excessive contribution amounts (57%), the bear market (33%), administrative costs (19%) and Pension Benefit Guaranty Corporation (PBGC) premiums (14%). The survey also revealed more stringent age and service requirements among defined contribution (DC) plans. Retirement Plan Trends in Today’s Healthcare Market – 2010 was conducted by Diversified Investment Advisors, Inc. (Diversified) and the American Hospital Association (AHA).
“We are seeing the trend of recent years continue where plans are being redesigned in a dynamic market,” said Laura White, vice president at Diversified. “Our survey report underscores how the need for plan sponsors to cut costs and better manage their plans has been a driving force behind retirement plan changes by healthcare organizations in 2010. While the healthcare segment represents just 10% of all not-for-profit plans, they account for nearly one-quarter of all not-for-profit plan assets and more participants than any other segment. As a result, the changes being made to their retirement plans are a good barometer for what’s happening in the not-for-profit segment overall.”
According to Retirement Plan Trends in Today’s Healthcare Market – 2010:
· Seven percent of healthcare DB plan sponsors expect to freeze their plan and 7% expect to move from a traditional DB to a hybrid plan.
· Six percent each said they would hire a consultant to develop a strategy for their DB plan, enhance their DC plan to compensate for a DB plan termination or freeze, reduce plan benefits or renegotiate their DB plan costs.
· The 403(b) plan continues to be the most prevalent DC plan available, with 84% of healthcare plan sponsors offering one. It also continues to be the type of plan with the largest number of participants (with 77% percent of respondents confirming this in 2010 versus 67% in 2009).
· More employers are imposing an age requirement of 21 years for plan entry (40% in 2010 versus 36% one year ago).
· Service requirements for plan entry and receiving employer contributions have become more stringent. Twenty-three percent of plan sponsors now require more than one year of service for plan entry compared with just 10% last year. Similarly, 41% require more than one year of service to receive employer contributions, a 4% increase over last year and 9% more than two years ago.
· Eighty-three percent of plan sponsors make employer contributions to their defined contribution plan, a three percentage point decline from one year ago. Among sponsors making contributions, 58% make fixed contributions and 25% make discretionary contributions. This year marks the second consecutive year with a marked increase in the use of discretionary contributions.
· Employer contributions had a significant impact on plan participation rates. Plans with employer contributions experienced a median participation rate of 75%, more than double the participation rate of plans without an employer contribution.
· Seventy-nine percent of plan sponsors currently employ a retirement plan advisor, up 3% from last year.
· Vendor changes are on the rise this year as well, with 11% changing recordkeepers, 9% consolidating recordkeeping for multiple plans; 8% changing advisors and 4% each reducing the number of providers and consolidating investments for multiple plans.
· This year’s survey also showed that overall 72% of plan sponsors outsource some aspect of their DC plan management to their retirement plan provider in the form of loans (52%), hardship withdrawals (50%), qualified domestic relations orders (37%), and enrollment (37%).
The financial pressures of the economic downturn have been difficult for hospitals in many areas.
“Attracting and retaining talented and skilled employees has long been a top priority at hospitals,” said James Wadzinski, vice president, AHA Solutions Inc. “With the economic downturn, hospitals have taken a close look at their existing plans to ensure they are being fiscally responsible, while also maintaining a high level of benefits for the caregivers who work there.”
New regulations coupled with the need to focus on the delivery of health care finds many plan sponsors looking to outside resources for guidance. For example, the Department of Labor’s required audits for plans with more than 100 employees has 48% of healthcare employers turning to their accountant to conduct their plan audit. Thirteen percent will rely on their retirement plan provider to arrange for an audit and 19% will hire a new auditor. More than one-third are unsure of the costs associated with conducting a plan audit.