Hospitals and healthcare institutions are extending supplemental retirement benefits to a greater proportion of physicians than they did two years ago, a new survey shows.
Some 25% of hospital-based physicians and physician groups are covered under supplemental deferred-compensation plans, a whopping 127% increase from two years ago, the survey found. In 1993, just 11% of physicians had that coverage.
The survey didn't attempt to quantify the amount of money hospitals and healthcare systems are spending on retirement programs.
The increase corresponds to the rise in hospital and health system acquisitions of physician practices (See related story, this page), said Mark M. Skinner, president of Copeland Associates, a division of Copeland Cos., an East Brunswick, N.J.-based provider of retirement program products and services. Copeland sponsored the retirement benefits survey, which represents responses from 443 members of the American Society for Healthcare Human Resource Administrators.
"Hospitals are working very hard to accommodate the financial needs of physicians," Skinner said. When physicians in private or group practices become employees of not-for-profit healthcare institutions, they lose the opportunity to build equity, he explained. Supplemental retirement plans are a way hospitals compensate for the loss of income from stock options or ownership in a practice that appreciates over time.
Copeland's 1995 survey is an update of its 1993 survey, which provided a benchmark for analyzing retirement benefits in the healthcare industry (July 26, 1993, p. 80).
The survey also provided evidence that cost-cutting pressures are affecting healthcare retirement benefits. Between 1993 and 1995, Copeland recorded a 13% increase in the use of Social Security "offsets." Such offsets are used to shave the amount of money hospitals will have to pay employees covered by defined-benefit plans.
More than 65% of survey respondents offer defined-benefit plans, which promise a specific benefit at retirement. Typically, the calculation used to determine the defined benefit is 1.5% of an employee's final average salary multiplied by the employee's total years of service, Skinner said. Increasingly, hospitals are reducing the total benefit by some percentage of the employee's Social Security benefit.
As healthcare systems are formed, benefit managers have an opportunity to consolidate several hospitals' benefit plans and reduce expenses. For a hospital with a $50 million payroll, a reduction as small as one-half of one percentage point in the amount it promises to pay out in defined benefits would save $250,000 a year. The savings come from the inclusion of a Social Security offset in the benefit formula.
Additional savings are being squeezed out by eliminating cost-of-living adjustments to defined-benefit plans. Copeland said the number of plans that offer a COLA to retirees decreased 22% since 1993. In 1995, only 14% of defined-benefit plans offer inflation protection.
Meanwhile, the healthcare industry continues to entrust employees with more responsibility for planning their financial futures by offering defined-contribution plans. Instead of promising a certain benefit at retirement, the employer contributes a specific amount to a retirement plan each year, and the employee must decide how to allocate the funding among various investment options.
The number of defined-contribution plans has increased 15% since 1993. Some 61% of hospitals and health systems offer such plans. In addition, 81% of survey respondents said retirement benefits in the healthcare industry will move to defined-contribution plans from defined-benefit plans over the next few years.
As in other industries, healthcare institutions are moving to defined-contribution plans because they're considered less expensive to administer and more appropriate for employees who are likely to work for several employers over the course of their careers.
However, less than half of respondents-41%-believe most of their employees are receiving adequate retirement planning assistance. And just 27% of hospitals indicated they offer any formal pre-retirement counseling program.
"Employees are going to have to take greater responsibility for their retirement plans in the future," Skinner said.
Executives covered under supplemental retirement plans
CEOs 86% 89%
CFOs 69 75
COOs 62 68
Vice presidents 56 64
officers 32 31
physicians 13 7
Physician groups 12 4
All employees 8 5
Directors 6 14
Managers 3 8
Other 3 7
Note: Percentages based on responses of
employers who offer supplemental deferredcompensation programs.
Source: Copeland Cos.