403(b) Regs Made Greater Mark than PPA in Health Care Industry

A news release said that was a key conclusion of a survey conducted by Diversified Investment Advisors, Inc. (Diversified) and the American Hospital Association (AHA). The release said more than double the number of plan sponsors replaced an investment manager or recordkeeper –19% and 20% respectively–based on the 403(b) regulations (see Rules/Regs: Waiting Room) as compared with 8% who did so because of PPA. Fourteen percent of health care organizations also plan to reduce the number of providers they use for plan management, an increase of 10% from last year (see The New 403(b) Model: Exclusive versus Multiple Vendor Programs).

In addition, 51% of health care plan sponsors are creating information sharing agreements for 403(b) contract exchanges, which allow plan sponsors and providers to monitor IRS requirements applicable to plan assets, the news release said (see (b)lines Ask the Expert – Information Sharing Agreements).

Among other changes spurred by the revised 403(b) regulations:

• 47% of plan sponsors are developing written plan documents (see The §403(b) Written Plan Requirements – Can they be Satisfied with Existing Documents?),
• 28% are consolidating plan vendors,
• 22% are implementing new distribution restrictions,
• only 3% are planning to terminate their 403(b) plans.

“As result of both the new 403(b) regulations and PPA, health care 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 administrative changes, as our survey confirms, ” said David Ray, vice president and practice leader at Diversified, in the release. “But Retirement Plan Trends in Today’s Health Care Market – 2008 also underscored that health care plan sponsors’ rapid response to the 403(b) regulations and to PPA one year ago demonstrates their commitment to helping employees prepare for retirement.”

Other key findings of this year’s Retirement Plan Trends in Today’s Health Care Market include:

• Automatic services and investment solutions have grown in popularity. The implementation of auto enrollment features increased by 6% to 29% in the past year; while the incidence of plans using automatic deferral 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 investment funds, with one-third of plan sponsors now offering more than 20 funds. But there are consequences for offering too much choice; plans with six to 10 investment options experience a median participation rate of 80%–10% higher than 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.
• Improving employee education consistently tops the list of anticipated plan changes, with 84% of respondents planning to do so. Offering financial planning (24%); adding investment options (22%) and consolidating recordkeeping for multiple plans (10%) were also cited.
• 78% of respondents who sponsor a defined benefit plan do not anticipate making any changes to their plan.
• For the first time, communicating retirement plan information via Internet/intranet sites has become more popular than via telephone/voice response systems. “Retirement plan sponsors and participants have become more comfortable with technology,” said Ray. “This acknowledges the efficiencies and interactivity that the Web affords.”

A total of 311 health care plan sponsors nationwide responded to the survey. To request a copy of the survey report, go to www.aha-solutions.org or call 800-242-4677.