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New Survey Reveals That the Pension Protection Act Significantly Impacts Retirement Plans for Healthcare Sector

Posted on: Monday, 1 October 2007, 18:00 CDT

Eighty-five percent of healthcare employers offer some form of investment advice to retirement plan participants as a result of the Pension Protection Act (PPA). This is according to the fifth annual survey, Retirement Plan Trends in Today's Healthcare Market -- 2007, conducted by the American Hospital Association (AHA) and Diversified Investment Advisors, Inc. (Diversified).

Retirement Plan Trends in Today's Healthcare Market -- 2007 underscores just how much the PPA paved the way for a broad array of changes to retirement plan design and administration, and with final IRS regulations for 403(b) plans just released, the healthcare retirement marketplace continues to adapt to this new environment.

Many plan sponsors have implemented or plan to implement many other changes to their retirement plans in response to the PPA. According to the 2007 survey of plan sponsors:

56% now offer managed accounts

29% plan to offer managed accounts in the future

67% plan to offer automatic enrollment and

30% plan to add automatic deferral increases, which is nearly triple the number who already have implemented it.

"The Pension Protection Act provides employers with incentives for offering an automatic enrollment feature," said David Ray, vice president and not-for-profit practice leader at Diversified. "This is because these and other automated features have quickly been shown to benefit participants who want to save for retirement but need help getting started, or simply do not have the time to actively manage their accounts."

The survey highlights that healthcare employers understand that employees may wish to take a more active role or may seek out different kinds of investment guidance at some point, so they are also committed to education and communication to ensure that they are taking steps to meet their divergent needs. Since 2003 improving employee education has consistently been the most anticipated plan change among plan sponsors with 85% indicating they would like to improve employee education, up from 63% reported in the 2006 survey. To this end:

80% of healthcare plan sponsors are conducting employee meetings

27% are tailoring print and electronic education materials

25% offer access to comprehensive financial planning and

12% are providing educational videos.

Diversified Investment Advisors, Inc./American Hospital Association Survey

The survey also revealed that plan sponsors continue to outsource a variety of administrative functions associated with their retirement plans including:

Loans (53%)

Hardship withdrawals (51%)

Qualified Domestic Relations Orders (45%) and

Paperless enrollment (36%).

"As we have seen in previous years' surveys, many hospitals prefer to outsource these functions to free up their human resources for other functions more central to operations and the delivery of care," according to Amy Goble, vice president of account management, AHA Solutions, Inc.. "Other plan sponsors, however, choose not to outsource administrative functions, with 60% of respondents feeling they are adequately staffed to perform them in house."

Plan providers have consistently demonstrated to the healthcare industry their responsiveness and flexibility in terms of the administrative resources and assistance they offer plan sponsors, as well as plan features and options that best meet their employees' needs.

Other Key Findings

While the Diversified/AHA survey focused primarily on retirement plans, a question about the types of plans offered revealed a key finding concerning defined benefit (DB) or traditional pension plans. Fifty-seven percent of respondents currently offer a traditional DB or hybrid plan, a figure that has remained relatively unchanged since 2004. More significantly, in a marked shift away from what corporate plan sponsors are doing with greater frequency, a vast majority (78%) of healthcare employers that offer traditional DB or hybrid pension plans do not expect to terminate or freeze these plans.

"The healthcare sector continues to offer employees a traditional pension plan as a means to attract and retain staff," said Laura White, vice president of Marketing at Diversified. "The continuation of traditional defined benefit plans may be due, in part, to the Pension Protection Act of 2006 (PPA), which requires hybrid DB plans to accelerate their vesting schedules so that participants are fully vested in their accrued benefit derived from employer contributions after just three years of service. As a result, sponsors are shifting their focus to traditional DB plans which can offer longer vesting schedules than hybrid pension plans."

Other key findings of Plans in Today's Healthcare Market -- 2007 include:

403(b) plans are the most commonly offered plan among healthcare plan sponsors, with 78% offering one. Forty-seven percent of healthcare plan sponsors offer a 457(b) plan, and 39% offer a 401(k) plan.

While 89% of healthcare plan sponsors make employer contributions to their Defined Contribution (DC) plans, deferral rates are not impacted by the plan's structure of matching contributions.

Electronic communications is the preferred method to reach employees, with 68% of plan sponsors using an intranet to communicate retirement plan information and 93% using email.

Forty percent of healthcare plan sponsors have an onsite retirement plan representative for their employees. Half of those sponsors reported a measurable impact on participation levels, while 36% said the onsite representative influenced employee understanding of the plan.

Plan sponsors are not taking full advantage of or do not have access to funds from multiple fund families -- 40% do not have investments managed by a firm other than their DC plan recordkeeper, while 31% have 75-100% of their investments managed by a firm other than their recordkeeper.

Diversified Investment Advisors, Inc./American Hospital Association Survey

"The healthcare retirement plan industry is a dynamic market that continues to be influenced not only by new legislation and regulations, but also by a more rigorous environment in which sponsors must compete for talent. Many factors contribute to the quality and sustainability of all-critical human resources," Ray said. "But retirement plans continue to be a focus of management and employees alike as part of those business imperatives."

Retirement Plan Trends in Today's Healthcare Market -- 2007 is the fifth annual survey conducted by Diversified and the AHA. The study, based on 2006 data, focuses on healthcare organizations' defined contribution retirement plan characteristics unique to healthcare organizations. A total of 264 healthcare plan sponsors nationwide responded to the survey. To request a copy of the survey report, please visit www.aha-solutions.org or call 800-242-4677.

About AHA

The American Hospital Association (AHA) is a not-for-profit association of healthcare provider organizations and individuals that are committed to the health improvement of their communities. The AHA is a national advocate for its members, which includes nearly 5,000 hospitals, healthcare systems, networks, and other providers of care. Founded in 1898, the AHA provides education for healthcare leaders and is a source of information on healthcare issues and trends. For more information, visit the AHA Web site at www.aha.org.

About AHA Solutions, Inc.

AHA Solutions, Inc., a subsidiary of the American Hospital Association, whose purpose is to identify and/or develop products and services that help hospitals and healthcare organizations operate more effectively and efficiently. As the only area of the AHA with rights to award the AHA Endorsement, the company relies on its due diligence and healthcare industry knowledge to provide resources to healthcare leaders in the areas of Human Resources, Finance, Revenue Cycle Management, Patient Flow and Technology. For more information, contact AHA Solutions at 800 242-4677 or visit www.aha-solutions.org.

About Diversified Investment Advisors, Inc.

Diversified Investment Advisors, Inc. is a national investment advisory firm specializing in retirement plans. The company's expertise covers the entire spectrum of defined benefit and defined contribution plans, including: 401(k) and 403(b) (Traditional and Roth); 457; non-qualified deferred compensation; profit sharing; money purchase; cash balance and Taft-Hartley plans; and rollover and Roth IRA. Diversified helps more than 1.3 million participants save and invest wisely for and throughout retirement.

Headquartered in Purchase, NY, the company's regional offices are located in Arkansas, California, Illinois, Iowa, Louisiana, Maryland, Massachusetts, New York, North Carolina, Ohio, Oregon, Pennsylvania, Texas and Wisconsin. To learn more, visit www.divinvest.com.

Source: Business Wire

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