Healthcare Organizations Report that Two-Thirds of their Employees Participatein a Defined Contribution Plan, Says New Diversified/AHA Report
According to a nationwide survey of nearly 200 health care plan sponsors, two-thirds of their employees participate in retirement plans, with participation in 401(k) plans (72%) slightly higher than that of 403(b) plans (65%). Further, highly compensated employees contribute more (7%) than other employees (5%). The survey, Retirement Plan Trends in Today’s Healthcare Market—2011, was conducted by Diversified and the American Hospital Association (AHA) to provide health care plan sponsors and their advisors with comprehensive benchmarking information and to help the strategic evaluation of their retirement programs.
"There is growing evidence that contribution levels of less than 10% to 12% are not sufficient for individuals to achieve a fully funded retirement," said Brodie Wood, vice president and not-for-profit practice leader at Diversified. "In an effort to increase employee savings and participation rates, most healthcare plan sponsors (87%) make employer contributions to their defined contribution plans."
The survey found that fixed employer contributions are more common (65%) than discretionary ones (22%). In addition, sponsors are more likely to impose a service requirement for employer contributions (83%) than they are for plan entry (72%). Thirty-eight percent of health care organizations require more than one year of service before offering employer contributions, and 41% require a waiting period of three months to one year.
"Plan participation generally increases as service requirements are shortened," noted Wood. "Those health care plan sponsors with a service requirement of less than three months report a 79% participation rate as compared to a 66% participation rate with a service requirement of three months to a year and a 50% participation rate with a service requirement greater than a year."
Among the survey’s other key findings:
- Most health care organizations (74%) offer matching employer contributions, and a match of $.50 on every dollar on the first 4% or 6% of pay is the most common formula.
- Vesting schedules for defined contribution plans are fairly evenly split across three options: immediate vesting (34%), cliff vesting (35%) and graded vesting (31%).
- 401(k) plans tend to offer more investment options: 67% offer more than 15 compared to 57% of 403(b) plans.
- Seventy-one percent of sponsors offer investment advice to plan participants, 53% offer managed accounts and 34% have adopted lifetime income/annuity options.
- Automatic features, which are more prevalent in 401(k) plans than in 403(b) plans, are more widespread than in the past. Overall, automatic escalation increased to 23% in 2011 from 14% in 2010 and automatic enrollment increased to 36% from 29% over the same period.
- Automatic enrollment works to increase participation rates. Sponsors report a participation rate of 79% in plans with automatic enrollment versus 62% without.
- Hardship withdrawals remain prevalent—47% of health care organizations report an increase in them over the past two years.
- Nearly eight in ten sponsors report using the services of a retirement plan professional such as a consultant (30%) or independent advisor (21%). Key advisor responsibilities involve ongoing monitoring of investments (79%) and investment selection (77%).
- Outsourcing of most aspects of plan management has increased, with the most commonly outsourced plan functions being loans (59%), hardship withdrawals (56%), enrollment (49%) and Qualified Domestic Relations Orders (47%).
- Internet communications increased from 69% in 2010 to 78% in 2011. This is particularly notable since many health care workers do not have traditional work stations with internet access at their fingertips.
- The prevalence of defined benefit plans continues to decline among health care organizations that also offer a defined contribution plan. Only 37% offer both plans today as compared to 45% one year ago.
- Defined benefit plans are more common among larger organizations, with 66% of companies with 5,000 or more employees offering one. This is compared to only 28% among organizations with less than 5,000 employees.
- Sixty-one percent of health care organizations use high employee participation as the primary measure of plan success, while just 26% feel that a plan is successful if participants are on track to meet their goals.
"Using only one statistic to measure plan success does not tell the whole story. For example, plans that have 100% participation but very low deferral rates may not be preparing participants adequately for retirement," explained Wendy Daniels, senior vice president of Diversified. "Technology now allows both sponsors and participants to use a more holistic measure of whether the plan is helping them reach their financial retirement goals."
"In fact, one-third (34%) of health care organizations state they are going to improve employee education—a step in the right direction, as education could lead to assistance in retirement income goal planning," Daniels noted.
About the Study
Retirement Plan Trends in Today’s Healthcare Market – 2011 is the ninth annual survey conducted by Diversified and the AHA. The study focuses on health care organizations’ defined contribution and defined benefit retirement plan characteristics. A total of 194 health care plan sponsors nationwide responded to the survey conducted during the second quarter in 2011. To request a copy of the survey report, please send an email to RetirementResearchCouncil@divinvest.com.
About the AHA
The American Hospital Association (AHA) is a not-for-profit association of health care provider organizations and individuals that are committed to the health improvement of their communities. The AHA is the national advocate for its members, which includes more than 5000 hospitals, health care systems, networks, and other providers of care, and 42,000 individuals. Founded in 1898, the AHA provides education for health care leaders and is a source of information on health care issues and trends. For more information, visit the AHA website at www.aha.org.
About AHA Solutions, Inc.
AHA Solutions, Inc. is a resource to hospitals pursuing operational excellence. As an American Hospital Association (AHA) member service, AHA Solutions collaborates with hospital leaders and market consultants to conduct product due diligence and identify solutions to hospital challenges. AHA Solutions provides related marketplace analytics and education to support product decision-making. As a subsidiary of the AHA, the organization convenes people with like interests for knowledge sharing centered on timely information and research.AHA Solutions is proud to reinvest its profits in the AHA mission: creating healthier communities. For more information, contact AHA Solutions at (800) 242-4677 or visit www.aha-solutions.org.
Diversified is a leading provider of customized retirement plan administration, participant communication and open architecture investment solutions for mid- to large-sized organizations. 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; nonqualified deferred compensation; profit sharing; money purchase; cash balance and Taft-Hartley plans; and rollover and Roth IRA. Diversified helps two million participants save and invest wisely for and throughout retirement.
Headquartered in Harrison, NY, the company’s regional offices are located in Arkansas, California, Florida, Illinois, Iowa, Louisiana, Maryland, Massachusetts, New York, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Utah and Wisconsin. To learn more, visit www.divinvest.com.
About The Retirement Research Council™
The Retirement Research Council, the research group of Diversified, is dedicated to:
- Presenting a comprehensive picture of the private retirement plans market;
- Providing retirement plan sponsors and their advisors with comprehensive benchmarking information; and
- Analyzing trends to assist with the strategic evaluation of retirement plans.
Drawing on more than 50 years of experience in retirement plan management, the Council periodically assembles a panel of experts from all facets of the retirement plans market to evaluate the current and future impact of trends shaping our industry.