Survey Finds Changes among Plans Sponsored by Health Care Organizations

The 403(b) plan continues to be the most prevalent defined contribution (DC) plan available, with 84% of health care plan sponsors offering one, according to Retirement Plan Trends in Today’s Healthcare Market – 2010, conducted by Diversified Investment Advisors, Inc. and the American Hospital Association (AHA). 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).  

New regulations find many plan sponsors looking to outside resources for guidance. Seventy-nine percent of plan sponsors currently employ a retirement plan adviser, up 3% from last year.   

In addition, the Department of Labor’s required audits for plans with more than 100 employees has 48% of health care 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 said they are unsure of the costs associated with conducting a plan audit.  

Vendor changes are on the rise this year as well, with 11% changing recordkeepers, 9% consolidating recordkeeping for multiple plans; 8% changing advisers and 4% each reducing the number of providers and consolidating investments for multiple plans. Overall 72% of plan sponsors outsource some aspect of their DC plan management to their retirement plan provider, including management of loans (52%), hardship withdrawals (50%), qualified domestic relations orders (37%), and enrollment (37%).   

According to the survey, health care employers that sponsor a defined benefit (DB) plan 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%).  

Seven percent of health care 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.   

Other survey findings included: 

• More employers are imposing an age requirement of 21 years for DC 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 DC 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. 

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Improving Outcomes for Participants  

Retirement Plan Trends in Today’s Healthcare Market – 2010, conducted by Diversified Investment Advisors, Inc. and the American Hospital Association (AHA) revealed auto plan features are effective in spurring participants to save more money for retirement. Plans with auto enrollment reported a median participation rate of 80% versus 53% for plans without auto enrollment.   

Plans that provide automatic deferral rate escalation report higher average account balances, $25,569 as compared to average account balances of $23,877 for all plans.   

In this year’s survey, 29% of health care employers said they auto enroll employees and 14% offer automatic deferral rate escalation, both of which declined two percentage points in the last year. Twelve percent of plan sponsors that use automatic enrollment default participants at a contribution rate of 5% or higher, compared with 4% a year ago. Plans that use a default contribution of 3% or less declined to 74% from 80% a year ago.  

Employer contributions also have 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.