Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.
More Health Care Organizations Bundling DB Plan Services
Health care organizations that sponsor 403(b) plans are somewhat more likely to offer a DB plan (41%, although down from 48% in 2012) than those that sponsor 401(k) plans (32%, consistent with prior years), according to the “Retirement Plan Trends in Today’s Healthcare Market – 2014” report released by Transamerica Retirement Solutions in partnership with the American Hospital Association.
The survey finds health care organizations that sponsor DB plans appear to be shifting away from unbundled service arrangements. Forty-one percent (down slightly from 44% in 2012) utilize an unbundled service arrangement for their DB plans—meaning they use distinct, unaffiliated providers for each service that is not performed internally. Semi-bundled arrangements—whereby some services are purchased as a package from a single company but separate companies are retained for the remaining services (or they are performed internally)—are used by 35% of health care organizations (down from 40% in 2012). Although only 24% utilize a fully bundled approach for their DB plans—whereby all services are purchased as a package from a single provider—this has increased considerably from 16% in 2012.
Total retirement outsourcing—defined as the outsourcing of all administrative functions associated with an organization’s defined contribution and/or defined benefit plans—has been implemented by 23% of health care organizations. An additional 16% are considering implementing such an arrangement. Only 10% have considered but decided against total retirement outsourcing. Typical outsourced functions include recordkeeping, reporting and compliance, employee communications and education, and customer service (web-based and/or via call centers).
More providers of defined contribution plans for health care organizations are involved in the administration of organizations’ DB plans in 2014 (42%) than had been in 2012 (35%). Plan providers are most likely to be involved with benefit calculations (30%), participant statements (28%), benefit payments (28%), and participant education and communication (19%). Investment-related functions such as investment management and asset liability modeling received less plan provider involvement, cited by only 15% and 9% of survey respondents, respectively.
A traditional DB plan is the most common type offered by health care organizations (88%), and this has increased considerably from 79% in 2012. Only 25% offer a cash balance or other hybrid plan (down from 29% in 2012).
Only 25% of health care organization DB plans are active. Thirty-five percent are frozen to all employees, and an additional 35% are frozen to new employees.
Nearly three in 10 health care organizations (29%) indicated they anticipate making a change to their DB plans. The most common expected change cited was “hiring a consultant to develop a strategy for the plan” (13%, up from 8% in 2012), followed by “freezing the plan” (11%, up from 7% in 2012), and “terminating the plan” (4%, consistent with 2012). Nine percent of plan sponsors expect to enhance their defined contribution plans in order to compensate for freezing/terminating their defined benefit plans (up from 1% in 2012).
DB plan funding levels are up. Nearly half (47%) of health care organizations that sponsor a DB plan reported a 91% to 100% funding level for their plans (markedly increased from 23% in 2012), and an additional 11% indicated a funding level in excess of 100% (up from 9% in 2012).
Health care organizations were asked to identify their specific concerns as they related to their DB plans. Fewer concerns were cited overall in 2014 compared to 2012, possibly resulting from the overall improvement in funding levels. When cited, the concerns indicated most often were “plan’s impact on company financial statements” (43%), “organization’s long-term commitment to the plan” (25%), “financial strength of the plan” (19%), and “employee appreciation of the plan” (15%, although declined in citation frequency from 23% in 2012).
To request a copy of the survey report, send an email request to marketinsights@transamerica.com.