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Retirement Plan Participation Rebounds in Healthcare Market, Says New AHA/Diversified Investment Advisors Study

Posted on: Wednesday, 7 September 2005, 09:01 CDT

Survey Also Reveals More Healthcare Plan Sponsors are Outsourcing Administration

Employees of U.S. healthcare organizations are taking greater responsibility for saving for retirement. According to the third annual survey, Retirement Plan Trends in Today's Healthcare Market - 2005, conducted by the American Hospital Association (AHA) and Diversified Investment Advisors (Diversified), the median participation rates for both 403(b) and 401(k) plans each increased 5% over last year.

"A number of factors including the gradual retreat of defined benefit plans and threats to the integrity of Social Security, for example, have caused employees to rethink how they are going to accomplish their retirement savings goals," said David Ray, a vice president and not-for-profit practice leader at Diversified. "These issues, coupled with improved investment returns, more relaxed age and service requirements, and substantial press about the need for saving, have positively impacted participation levels among healthcare employees."

As in the 2004 AHA/Diversified study, there is a clear correlation between more generous matching contributions and employee participation rates. Retirement plans with a "dollar-for-dollar" match have average participation rates substantially higher (69%) than plans that match $.25 on each dollar of participant deferral. In addition, 89% of plan sponsors make employer contributions to their defined contribution plans. Continuing the positive trend highlighted in the 2004 study, more small plan sponsors offer an employer contribution, 90% this year compared to just 80% in 2004 and 73% in 2003.

"We are also seeing an increase in the offering of 401(a) plans, which are typically funded exclusively with employer contributions, in addition to 403(b) and 401(k) plans. Not only can they serve as a substitute for frozen or terminated defined benefit plans, they also provide extra support for employees concerned about their retirement savings, while providing financial assistance to an aging workforce without the long-term commitment of retiree benefits," he added.

The AHA/Diversified Study showed however that 403(b) plans continue to be most prevalent, with 75% of all healthcare organizations offering them to employees. In addition, 403(b) plans have the largest number of participants for more than half (56%) of the respondents. Forty percent of respondents offer 457(b) plans, while 34% offer 401(k) plans.

The 2005 study also revealed that plan sponsors are outsourcing more functions to their providers than just one year ago, with sponsors with at least 1,000 employees more likely to do so than smaller sponsors. Processing minimum distributions, loans and hardship withdrawals are the functions most commonly outsourced, 59%, 58% and 55%, as compared to 55%, 48% and 44% respectively in 2004.

The survey also revealed that there still is room to shift even more of the day-to-day management to providers. When plan sponsors were asked why they don't outsource more services, 58% of respondents said that they have adequate HR staff; 45% said they want to maintain control; 13% said they have fiduciary concerns, and 9% said their plan provider does not offer the services.

According to Amy Goble, vice president of finance, AHA Solutions, Inc., "The up-tick in outsourcing signals an important strategic business decision by healthcare plan sponsors who want to focus more on their core competencies and conserve valuable human and financial resources."

Goble also points out that the dynamic nature of retirement plans today, compounded by the demands faced by healthcare employers, has created many challenges for plan sponsors such as encouraging employee participation. Despite the increase in participation from 2004, 80% of respondents said they were still concerned with both educating and encouraging employees to take appropriate actions such as enrolling in their plans, saving adequately and investing appropriately when asked about their top challenges as a plan sponsor. Forty-six percent are concerned about keeping up with regulations.

"Recruiting and retaining valuable employees in a competitive environment, coupled with mounting healthcare costs, decreasing availability of retirees benefits, and uncertainty about retirement income sources are all contributing to the increasingly important role that plan sponsors must play in designing and administering their retirement plans," Goble explained.

Other key survey findings include:

-- For plans other than 403(b) plans, 27% of plan sponsors have no minimum age requirement for plan entry, and 30% of those same plan sponsors have no service requirement for entry.

-- Plan sponsors offer a more limited number of funds than in the past two years. For example, only 26% of plans offer more than 20 investment options, compared with 30% of plans just a year ago and 40% of plans two years ago.

-- Employee education and guidance continue to be critical to a plan's success, the 2005 Survey showed employee education is the top priority of anticipated plan changes, with 80% of plan sponsors having this goal. In fact, 95% of plan sponsors with 10,000 employees or more expect to improve their employee education programs.

Retirement Plan Trends in Today's Healthcare Market - 2005 focuses on the defined contribution retirement plan characteristics unique to healthcare organizations. More than 360 hospital administrators responded to the survey, which is based on 2004 data. 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 wholly-owned subsidiary of the American Hospital Association, functions as a product advocate for hospitals; working with vendors to create platforms of validated and differentiated product and service solutions to address key operational needs. AHA Solutions is a trusted market resource on key issues in health care and related available resources. For more information, contact AHA Solutions at (800) 242-4677 or visit the Web site at www.aha-solutions.org.

About Diversified Investment Advisors

Diversified Investment Advisors is a national investment advisory firm specializing in retirement plans. Diversified has been serving the healthcare market since 1963 and is a leading provider of retirement plan services to healthcare organizations, managing assets for more than 1,000 healthcare entities. The company's expertise covers the entire spectrum of defined benefit and defined contribution plans, including: 401(k); 403(b); 457; non-qualified deferred compensation; profit sharing; money purchase; cash balance and Taft-Hartley plans; and rollover and Roth IRA.

Headquartered in Purchase, NY, the company's regional offices are located in Arkansas, California, Georgia, Illinois, Iowa, Louisiana, Maryland, Massachusetts, New York, North Carolina, Ohio, Oregon, Pennsylvania, Texas and Wisconsin. Visit our Web site at www.divinvest.com.

Source: Business Wire

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