Engage With AHA Solutions
Resource:
2012 Executive Summary: Retirement Plan Trends in Today's Healthcare Market
Ten Year Anniversary: Comprehensive benchmarking information to help the strategic evaluation of your retirement programs.
About the Survey
Retirement Plan Trends in Today’s Healthcare Market—2012 is the tenth annual survey conducted by Transamerica Retirement Solutions and the American Hospital Association (AHA). This report analyzes responses from 180 health care plan sponsors nationwide. It was developed to present health care plan sponsors and their advisors with comprehensive benchmarking information that will support the strategic evaluation of their retirement programs.
Executive Summary
Retirement plan sponsors continue to be challenged by an unstable and erratic economy that appears to be rebounding. Though the future of the economy may be unknown, we can say with certainty that we are faced with a retirement crisis. Experts predicted years ago that baby boomers would be unprepared for retirement. Now these boomers are reaching retirement age and the experts’ predictions are proving true. Industry research confirms that there is a dire need to help employees prepare for retirement. Social Security is financially projected to expire in 2033, and the prevalence of defined benefit (DB) plans has declined. In fact, fewer than half of health care plan sponsors offer a defined benefit plan, and more than half of the plans offered are frozen. Each year, more plan sponsors state they will freeze their defined benefit plan, which, coupled with the uncertainty about Social Security, makes it imperative that employees have another source of retirement income.
Plan sponsors have long understood the need to help participants prepare for retirement, and today they are becoming increasingly more proactive in this endeavor. Research indicates that many plan sponsors have begun to recognize the importance of thoughtful, effective plan design as the foundation for encouraging participants to take action to improve their retirement readiness.
While many plan sponsors still feel that participation rates are the best indicator of plan success, they understand now more than ever that participation rates alone are not enough. Measures such as deferral rates and income replacement ratios are increasingly important as a way to evaluate plan success.
Additionally, more plan sponsors are making it easier for employees to participate by implementing automatic enrollment and adopting automatic deferral escalation. However, the default deferral level with automatic enrollment is still low—typically 3% or less—which is not enough to ensure a fully funded retirement. Self-enrolled participants generally contribute about 7% of salary, indicating plan sponsors should consider setting the default level to at least this amount.
Plan sponsors state that their main challenge is motivating employees to save adequately and invest wisely. One response to this is to implement automatic enrollment, as more than one-third state this is important in helping participants prepare for retirement. Employee meetings are also vital to encourage participants to do more to achieve their retirement-readiness goals.
Plan sponsors also appear to be taking steps to simplify plan design. Defined contribution (DC) plans in the health care market are more likely to include managed accounts, which could result in easier plan operation. Another new trend is the increased utilization of annuity products. Participants have expressed a desire for a guaranteed income-for-life; however, adoption of annuity products has been minimal.
Given participant interest in annuities—as well as the perceived complexities—plan providers are beginning to market existing annuities in a way that is more easily understood by participants. Additionally, a new type of annuity product is emerging which is designed to be more easily understood, more transparent, and more flexible.
Regarding retirement plan offerings today, three-quarters of healthcare plan sponsors offer a 403(b) plan and 41% offer a 401(k) plan. Most health care plan sponsors use just one plan provider for their defined contribution plans. Plan sponsors offer many investment options, with 48% offering more than 20. Proprietary funds are becoming less common; while two-thirds offer a fund that is proprietary to the plan provider, this is declining.
Almost three-quarters of employees in health care organizations participate in their employer’s defined contribution plan. Participation in 403(b) plans is higher than in 401(k) plans (73% vs. 72%). Highly compensated employees continue to have a higher participation rate.
Self-enrolled participants are likely to defer 7% on average. Although this is higher than the deferral rate for automatically enrolled participants, research has shown that this level is still not sufficient for most participants to achieve a fully funded retirement. However, with the increase in automatic deferral escalation, we may see an improvement.
Age and service requirements are common for entry into a defined contribution plan, and for receiving employer contributions. Plan sponsors are more generous with employer contributions as more sponsors do not require a minimum age for employer contributions as compared to requiring a minimum age for plan entry. Consistent with other findings that plan sponsors are taking more measures to help participants prepare for retirement, health care plan sponsors are now more likely than in prior years to allow employees to enter the plan immediately upon employment.
The majority of health care plan sponsors offer employer contributions with most being a matching contribution. The most likely matching formula is $0.50 on the dollar up to the first 4% to 6% of pay. For the almost one-third of employers who contribute a stated percent of salary, 3% to 4% is most likely, and has remained steady over the years.
The drawdown on defined contribution accounts through loans and hardship withdrawals is still of concern. One-in-ten participants has an outstanding loan and more than half of health care plan sponsors state there has been an increase in hardship withdrawals. This is troubling as participants’ contributions alone are not likely to ensure a fully funded retirement and any reduction in participants’ accounts just furthers this deficit.
The majority of health care plan sponsors utilize the services of an advisor and this trend is increasing, possibly due to the emergence of the Professional Retirement Plan Advisor (as explored in Transamerica’s The Advisor Practice of the Future—2012-2015). With the expanding responsibilities of the advisor, the increase in regulatory mandates, and the quest to help participants achieve a fully funded retirement, advisors are either becoming exclusively focused on retirement plans, or are exiting the retirement plans business altogether. Plan sponsors, as we have seen, are continuing to shift their focus to helping participants save, and as a result, fiduciary and investment responsibilities may start shifting solely to the advisor.
Four-in-ten health care plan sponsors (42%) offer a defined benefit plan. Larger companies with 5,000 or more employees remain most likely to have a defined benefit plan (60% compared to 32% of companies with less than 5,000 employees). A traditional plan is most common. Defined benefit plans are more likely to be frozen, as over half of sponsors state their defined benefit plan is frozen. Frozen plans are equally likely to be frozen to new employees (51%) and all employees (49%).
Health care organizations are beginning to adopt total retirement outsourcing, which is the outsourcing of all administrative functions associated with the company’s defined benefit and defined contribution plans. The majority of sponsors who implemented this arrangement are satisfied with it, mainly because they feel it helps employees achieve a fully funded retirement. There could be an increase in total retirement outsourcing as one-quarter of those who haven’t implemented it have simply not been approached by their plan provider(s).
As the success of these arrangements becomes better known— and plan providers explain the benefits to plan sponsors—we may see an increase in utilization. For the past ten years, Retirement Plan Trends in Today’s Healthcare Market has presented current topics and ongoing trends of the evolving retirement industry. The findings provided are designed to help plan sponsors and their advisors compare their plans to industry benchmarks, enabling them to measure the health of their plans, to provide direction for future plan management, and to help their employees achieve their retirement income goals.
AHA Solutions, Inc.
AHA Solutions, Inc. is a resource for hospitals that are 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 in several operational areas including finance, human resources, patient flow, and technology. AHA Solutions provides related marketplace analytics and education to support product decision-making. As a subsidiary of the AHA, the organization convenes people with a similar interest in 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.
American Hospital Association
The American Hospital Association (AHA) is a not-for-profit association of healthcare providers and individuals who are committed to health improvement in their communities. The AHA is a national advocate for its members, which include more than 5,000 hospitals, health systems and other healthcare organizations, and 42,000 individual members. 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 www.aha.org.
About Transamerica Retirement Solutions
Transamerica Retirement Solutions (Transamerica) has been serving the healthcare market since 1963 and is a leading provider of customized retirement plan solutions for small- to large-sized organizations.
Transamerica partners with financial advisors, third-party administrators, and consultants to cover the entire spectrum of defined benefit and defined contribution plans, including: 401(k) and 403(b) (Traditional and Roth); 457; profit sharing; money purchase; cash balance; Taft-Hartley; multiple employer plans; nonqualified deferred compensation; and rollover and Roth IRA. Transamerica helps more than three million retirement plan participants save and invest wisely to secure their retirement dreams. For more information about Transamerica Retirement Solutions Corporation, please visit www.trsretire.com.
Market Intelligence
We are dedicated to:
- Presenting a comprehensive picture of the private retirement plans market.
- Providing plan sponsors and advisors with comprehensive, actionable benchmarking information.
- Analyzing trends to assist with the strategic evaluation of retirement plans. Drawing on 75 years of experience in retirement plans management, we periodically assemble experts from all facets of the retirement plans business to evaluate the current and future impact of trends shaping the industry.
To request a copy of the full Retirement Plan Trends in Today’s Healthcare Market—2012 report, contact your Transamerica representative or email MarketInsights@transamerica.com.