When 45-hospital Trinity Health in Novi, Mich., redesigned its retirement plan in January 2002, the system added a dollar-per-dollar match for employee contributions of up to $500. That simple change boosted employee participation in the retirement program to 60% in the spring of 2004, from 45% in 2002.
The enhanced defined-contribution plan constitutes the third leg of Trinity's retirement "three-legged stool"-including Social Security and a fully funded defined-benefit plan-and represents a shift toward "shared responsibility" for securing worker retirement incomes, said Paul Swanson, vice president of benefits and retirement programs at Trinity.
The move also allows Trinity to cut back on the defined-benefit formula, better predicting costs in the future and reducing overall pension fund obligations, Swanson said. The money saved is no small matter as many hospitals face growing pension fund deficits (Dec. 8, 2003, p. 6). Trinity expects to pay $158 million in pension fund obligations this year, compared with nothing in 2001.
Trinity represents part of a growing trend of healthcare plan sponsors in administering retirement plans. Some 45% of healthcare organizations offered some type of matching contribution to retirement accounts in 2003, according to a new survey by the American Hospital Association and a national investment advisory firm.
Almost nine out of 10 healthcare organizations contributed some amount to their employee defined-contribution plans in 2003, the study found. The percentage of employers contributing nothing to those accounts fell to 11% in 2003, from 14% the previous year.
As healthcare staffing shortages nationwide continue to spur increased spending on employee benefits such as retirement plans, market volatility and fiduciary concerns are eliciting closer attention to how those accounts are managed.
Plan sponsors are streamlining the array of funds so employees can better understand their retirement plans and investment options. Some 80% of respondents said improving education was a top initiative.
"Because of workforce shortages, hospitals are using plans to attract and retain employees," said Amy Goble, vice president of financial services at AHA Financial Solutions, a for-profit subsidiary of the AHA. And hospitals want to ensure that employees have a "good retirement nest egg when they're ready to retire."
Rather than relying on a patchwork of popular funds as they had in the past, more healthcare employers are now ensuring that fund choices yield a diversified and stable portfolio, while making investment options simpler for employees to understand. The survey found a drop in the number of plan sponsors offering more than 20 investment options while recording a surge in the number of sponsors offering a more "discerning selection" of 11 to 15 funds.
The AHA's second annual survey, conducted with Diversified Investment Advisors, focused on defined-contribution plans. Some 282 healthcare plan sponsors-hospitals, health systems and other healthcare organizations-responded to the survey this year, down from 303 last year. About 85% of respondents were not-for-profit healthcare organizations.
The most common type of plan offered by healthcare organizations was the 403(b) plan at 81%, up from 78% in 2002, while the percentage of sponsors using 401(k) plans rose to 34%, from 31% in 2002. Participation rates in tax-exempt 403(b) plans, which generally are invested more conservatively, have risen slightly to 61% from 60%, while 401(k) participation dipped to 65% from 70% the previous year, possibly because of market volatility and corporate scandals.
To attract and retain more staff, many plan sponsors have been relaxing some participation requirements while toughening others. The percentage of plans with no service requirements rose to 50%, from 47% in the previous year, while the percentage of plans subject to vesting schedules of five years or more rose to 56% from 50%.
Generally, larger outfits were more likely to outsource administrative plan functions, which can add to efficiency, and they also were more likely to offer defined-benefit plans.