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PLAN SPONSOR OF THE YEAR

403(b)

Miami Children's Health System

Michael Kushner

TOTAL PLAN ASSETS/PARTICIPANTS: $269,487,830/6,274

PARTICIPATION RATE: 95.5%

AVERAGE DEFERRAL RATE: 4.24%

DEFAULT DEFERRAL RATE: 3%

In the 1980s, Miami Children’s Health System closed its defined benefit (DB) plan and started offering a 403(b) plan to employees, recounts Michael Kushner, senior vice president and chief talent officer of the organization. At that time, Miami Children’s contributed a nonelective 5.75% for each employee who met eligibility requirements, and had three vendors/recordkeepers and 67 investments. In 2004, it moved to a single recordkeeper, Prudential Retirement, and now the health system, covering three southeastern Florida counties, offers 23 investments in the plan lineup.
 
Participation in the 403(b) plan was low, however. About four years ago, the health system decided it was financially unsound for employees to neglect contributing to their accounts; they were accruing too little savings, Kushner says. Therefore, the system implemented a matching contribution of 100% of up to 3% of deferred salary. At the same time, the organization increased its nonelective contribution to 6%—a further disincentive for participants to increase salary deferrals. In 2011, the plan had just 33% participation.
 
According to Anton Tansil, vice president, key accounts, at Prudential Retirement in Hartford, Connecticut, from 2012 through 2015 the hospital began executing several strategic initiatives to help improve the financial health of each employee.
 
In 2013, Miami Children’s implemented automatic enrollment at a 3% default deferral rate, and dropped the nonelective contribution to 3% to encourage employees to participate in the plan and save more. There was about a 9% opt-out that initial year.
 
In 2014, it instituted automatic re-enrollment where employees had to opt out annually if they wanted to avoid joining the plan, Kushner says. “After a while, some employees just gave up and let their money be put into the plan.” Less than 5% opt out, from year to year, he adds.
 
In 2016, the plan implemented automatic deferral escalation of 1% annually, up to 6%. “We feel 6% of their money plus 6% of our money will help employees achieve the quality of life they want in retirement,” Tansil observes.
 
At the same time, the health system was able to reduce retirement plan expenses by implementing a lower-cost fee structure within the investment menu. Revenue sharing generated by the fund lineup that exceeds what is needed to cover administrative expenses is rebated to participants. Kushner says Miami Children’s 3(21) investment adviser, CAPTRUST, monitors the performance of funds and works with the committee to ensure underperforming funds are eliminated.
Improved Education Services
 
During the 2012 to 2015 period, employees increasingly utilized plan-related education services, whether through a dedicated retirement counselor at the health system or through Prudential’s multi-media participant engagement platform. In addition, 71% of participants use Prudential’s GoalMaker asset-allocation tool, compared with 55% who did so in 2011. Kushner says this tool puts participants into the appropriate lifestyle fund.
 
He also says that employees failed to really understand the plan before. Now that they have a better grasp of it and are seeing growth in their account balances, they are more engaged.
 
Prudential currently provides education about fund allocation, range of asset classes offered, reasons why employees should save, and the time value of money (TVM). Financial wellness education, such as instruction on paying off debt and student loans is also offered.
 
Kushner says they are currently working on more innovative programs to implement within the hospital. Some, such as the financial wellness program Prudential Pathways, will be part of a three-year program, and some are already under development. Further, the hospital is looking at behavioral trends regarding retirement and saving in Millennials, Generation X and other groups to better understand what drives them toward financial stability.
 
The health system also engaged Prudential to educate participants on how to create an income stream from their savings. “Participants don’t know how to translate the account balances to monthly income over time,” Kushner says. “We’ve seen people take their money and go on a vacation or buy a car.”
 
The system currently allows participants to take systematic withdrawals from the plan and considers adding an in-plan retirement income solution, Kushner says.
 
Three-Year Strategic Plan
Last year, the health system began executing a documented three-year strategic plan, created jointly with Prudential, to not only sustain the gains of the retirement program achieved so far, but to better define the path forward.
 
One of the guiding principles for this plan is that more automation, and less manual involvement, improves efficiency, while better cost management reduces the financial impact to both participants and the hospital.
 
According to Kushner, certain administrative processes had involved manual intervention where that had been unnecessary. “We have worked diligently to eliminate these areas and move to an all-systematic administrative approach. A great example would be auto-enrollment, where each new hire or rehire participant is automatically enrolled in the plan at 3%,” he says.
 
The strategic plan also strives to increase the awareness and competitiveness of the retirement program, to support retention and recruitment efforts of key skilled employees. Attracting and retaining the best talent—in light of the hospital industry’s aging work force, where one in three practicing physicians is over 65—is a critical component for staying competitive.
 
The third guiding principle is to provide a program that can help employees retire on time. Kushner says that goal is based on employees having, from all sources, a minimum of 75% income replacement.
 
According to Tansil, Miami Children’s is smart to acknowledge the financial challenge an aging work force can have on benefit costs. “It also recognizes the opportunity-costs for Millennials, who may choose to leave if they don’t see a strong career path ahead,” he says.
 
Others goals of the strategic plan are: to sustain 95% participation and to most efficiently use employer matching dollars; to ensure on-time retirement for employees; and to actively utilize educational resources—e.g., adopting Prudential Pathways to foster long-term financial security for employees. “Given the hospital’s multi-generational work force, we are exploring [means] to enhance our employer match formulas in [such a way as] to put us in the best position to attract and retain key talent,” Kushner says.
 
Since starting the strategic plan, the health system has exceeded its participation-rate target, has maintained diversification where over 84% of participants are invested in four or more funds, is implementing auto-deferral escalation, a Roth option, and is continuing to take steps to benchmark fees and ensure that the plan is competitively priced.
 
“We think we’re making progress, and we’re most proud of our high participation rate,” Kushner adds. “We just have to get employees to understand how much difference saving in the plan makes with their retirement goals. It’s something we work for day in and day out.” —Rebecca Moore

 

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