The
Department of Labor (DOL) has reached a settlement with PBI Bank in a lawsuit
regarding the bank’s role as trustee of the Miller’s Health Systems, Inc.
employee stock ownership plan (ESOP).
In
the suit, the DOL alleges that PBI Bank authorized the purchase of company stock by the plan for $40
million, an amount far in excess of the fair market value of the stock. It is
also alleged that PBI Bank approved financing for the transaction at an
excessive interest rate.
The
DOL charged PBI Bank with violating the Employee Retirement Income Security Act
(ERISA) after it determined the stock purchase was not made for the primary
benefit of participants and did not promote employee ownership in Miller’s
Health. The suit sought to require PBI Bank to restore all losses suffered by
the ESOP, plus interest.
A
federal court in Indiana has entered an Agreed Order and Judgment requiring PBI
Bank to pay $1,052,613 to the ESOP to restore alleged losses. The terms of the
judgment also require PBI to pay $83,750 to Miller’s Health Systems and
penalties of $113,636 to the department for violating ERISA.
Neither
Miller’s Health Systems nor PBI Bank have acknowledged any wrongdoing in the
matter. However, PBI Bank, a subsidiary of Porter Bancorp in Louisville,
Kentucky, has agreed to refrain from serving as a trustee or service provider
for any plan covered by ERISA, with a few exceptions.
Health care providers are becoming increasingly attuned to
the need to prepare their workers adequately for retirement, a survey by
Transamerica Retirement Solutions and the American Hospital Association found.
Sixty-eight percent of health care providers say “helping employees accumulate
income for retirement” is the primary goal of their plan, up from 65% in 2014.
Asked about the best indicator of plan success, employees’ retirement readiness
now surpasses participation rates, with 41% citing retirement readiness, up
from 35% in 2014, and 39% pointing to participation rates, down from 48% in
2014.
Asked about their challenges and concerns about running the
plan, 81% of health care retirement plan sponsors said motivating employees to
save adequately, and 38% said helping participants to invest wisely.
Administrative challenges are also a source of unease, with 55% saying managing
the workloads of human resources staff, 41% pointing to keeping up with
regulatory changes, and 33% citing meeting fiduciary responsibilities as concerns.
When asked about their concerns about plan outcomes, 53% said
they are worried about the impact of rising health care costs on their
retirement plans, and 51% said they are anxious about employees delaying
retirement because they are financially unprepared.
NEXT: Provider
support
The majority (54%) of health care retirement plan sponsors say
they receive a great deal of help from their providers, though that is down
from 64% in 2014.
Asked what initiatives they have taken to help their
participants, 90% say holding one-on-one employee meetings, 73% say offering a
match, 67% say conducting group employee meetings, 59% say offering convenient
ways to increase contributions, 51% say offering investment advice or managed
accounts, 48% say implementing automatic features and 44% say consolidating
retirement assets.
Overall health care providers appear to be doing
right by their participants, Transamerica says. “Hospitals and other health
care employers have become increasingly attentive to the retirement readiness
of their participants in recent years,” says Brodie Wood, senior vice president
of not-for-profit markets at Transamerica Retirement Solutions.
The most common type of retirement plan that health care
providers offer is a 403(b) plan, implemented by 88% of sponsors, followed by:
a 457(b) plan (72%); a 401(a) plan (41%); a 401(k) plan (38%); and a 457(f)
plan (38%). Offering a Roth option is also trending up, with 33% of 403(b)
sponsors offering this feature, up from 21% in 2014.
Ninety percent of health care providers offer some type of
employer contribution, with 75% using a matching contribution. However, where
health care providers are falling down on their retirement plans is the level
of the employer match. The most commonly cited match formula last year was a
50-cent contribution up to 6% of pay for a total match of 3%, cited by 24% of
sponsors. In 2015, that fell to 12%. Correspondingly, a lower employer match
formula of 50 cents up to only 3% of pay for a total contribution of 1.5%
increased to 23% this year from 15% in 2015.
NEXT:
Use of automatic features
Use of automatic enrollment and
automatic escalation is
trending up, with 51% of health care retirement plan sponsors
automatically
enrolling their participants, up from 40% in 2014, and 47% automatically
escalating their deferral rates, up significantly from 22% in 2014.
However, the majority of sponsors (62%) use a default deferral
rate of 3% or less, up from 48% in 2014. Asked why they default their
participants’ contributions at such a low rate, 44% said they are
concerned
about their employees’ living expenses, and another 44% said their
consultant
or adviser recommended a default rate of 3% or less.
The most common default instruments are target-date funds,
used by 68% of sponsors, followed by custom model portfolios (16%) and stable
value funds (8%).
Participation rates in health care retirement plans is high,
82%, up from 72% in 2014. Among non-highly compensated employees, it rose to
78% in 2015, up from 67% in 2014, and among highly compensated employees, it
dipped slightly down, to 95%, compared to 98% in 2014. Deferral rates remained
constant, at 6%, the same as in 2014. Average balances ticked downward, to
$43,900, compared to $45,000 in 2014.
NEXT: Onsite
representatives and advisers
Nearly two-thirds (64%) of health care organizations surveyed use the services of an onsite
representative for: one-on-one meetings with
employees (98%), helping employees understand the plan (91%), improving
employees’ appreciation of the plan (79%) and enhancing participants’
retirement readiness (77%).
The vast majority, 84%, of health care retirement plan
sponsors work with an adviser or consultant who works either primarily (32%) or
exclusively (28%) with retirement plans. Seventy-two percent of these advisers
meet with their health care sponsors every quarter.
Advisers provide many services: reviewing investment options
(cited by 95% of sponsors), helping draft the investment policy statement
(88%), conducting investment provider due diligence (83%), explaining provider
fees (76%), handling fiduciary responsibilities (64%), making plan design
recommendations (53%) and monitoring service providers’ duties (51%).
As to how advisers are paid, fewer (40%) charge hard-dollar
fees in 2015, compared with 2014 (46%). Correspondingly, 33% of advisers charge
hard-dollar fees in 2015, up from 27% in 2014. And they are charging higher
fees, with the percentage of those charging less than five basis points
declining from 50% in 2014 to 42% in 2015, and those charging between five and
10 basis points increasing to 42% in 2015, from 29% in 2014.
Transamerica’s comprehensive survey, "Retirement Plan Trends in Today's Health Care Market 2015," was comprised of 100
questions and conducted online in January 2015 among 112 hospital
administrators and chief financial officers. The full report can be downloaded
here.