Healthcare Employers Not Immune from Retirement Plan Trends
Employers in the healthcare industry, it seems, are not immune from some of the macro trends concerning retirement plans. A recent study that takes the temperature of that segment’s retirement plans finds chills as well as robust conditions much like those in other industries.
In “The Path to Wealth Starts With Health: 2017 Retirement Plan Trends in Today’s Healthcare Market
,” Transamerica takes a close look at the retirement benefits employers in that sector are offering.
“To attract talent away from other occupations, healthcare organizations have been updating their retirement benefits programs to look more like those found in the corporate sector, albeit with more complexity,” says the report, adding that “in this respect, healthcare organizations are in the same situation as other employers of the not-for-profit sector.”
The report says that among the healthcare employers it studied, traditional pension plans are “becoming scarcer as healthcare organizations look to freeze or terminate their current plans.” Even in recent years, the decline has been precipitous: in 2014, Transamerica says, 37% of these employers offered pensions; one year later, 28%; and in a mere two years, the number of employers doing so dropped by 10 percentage points.
In addition, the problems those healthcare employers are experiencing with their pension plans are much the same as those their counterparts in other sectors are experiencing. To wit: healthcare employers are freezing or terminating their pension plans due to increased longevity and return rates that are “persistently short of assumptions”; not only that, many of those employers are “pouring more money” into their pension plans, yet find that they still have lost ground regarding pension obligations.
And the yin and yang of DB and DC plans in the healthcare sector also reflects that among employers in general. Accordingly, the report says that in the healthcare employers it studied 401(k)s are “enjoying a surge in popularity.”
Increasing popularity of 401(k)s among employers doesn’t necessarily translate to heavy participation by employees. And therein is yet another similarity with more trends others have noted: participation levels that need improvement, and difficulty motivating employees to save. “Convincing staff to save any amount is a challenge, and many organizations view participation rate as the key indicator of plan success, just as retirement readiness is the key indicator in the corporate sector,” says the report. So pervasive is that problem, it says, that “The difficulty of convincing staff to save for retirement is such that only specialized providers with deep experience in the healthcare sector can provide effective help.”
But a majority of the employers appear to at least recognize the problem, the study suggests. Transmerica reports that 63% said that employees’ lack of financial literacy and lack of understanding regarding how much they should save is a factor that prevents employees from saving through their plan. More than 40% cited employees’ preference for spending over saving was a problem. And just over one-quarter said that employees’ lack of motivation to increase their contribution rate after enrolling was a factor.
However, relative lethargy regarding retirement plans and saving for post-workforce life is not the sole province of employees in the healthcare sector: the report suggests that their employers don’t evince strong interest in taking action to change the situation. It says that while “many” healthcare organizations require that there be on-site staff to support participants in making decisions about their retirement accounts, approximately one-third have full-time plan representatives their service provider assigned to perform that function.
Dollars and Cents
Low enthusiasm extends to employer roles that involve expenditure of money, as well. The report says that in 2016, “fewer” plan sponsors in healthcare organizations were matching employee contributions at a rate of $0.50 per $1, and the percentage of organizations that matched $0.25 on the dollar rose from 7% in 2015 to 16% in 2016. And the slide has continued: in 2017, more of those plan sponsors are matching each $1 an employee contributes with $0.25. In addition, it reports, to receive the full employer match, many employees in the healthcare sector must defer at least 4% of salary.
Employers in this sector also are lackluster regarding automatic enrollment default contribution rates, the report says. Fewer employees match at 4%-6% of salary, and just over 70% of them set that rate at 3% of salary. This may help the employers, the report says, since it can help them control their employer contribution budget, but “it is not conducive to retirement readiness and may create a liability associated with workforce aging in the long run.” It adds that this is “a level too low to help anyone achieve retirement success.”
Rays of Hope
But there is a ray of hope regarding employer contributions, the report notes. Transamerica found that the number of organizations matching employee contributions dollar for dollar stood at 35% in 2015 and 43% in 2016. And while more are matching at 3%, the number of plans matching at 5% doubled from 2015 to 2016 to 16%, and the number matching at 6% tripled in one year to 12% in 2016.
A majority of healthcare organizations pay at least part of the administrative costs of providing a plan, the study says; in fact, 66% do so — and slightly more than one-third pay all of them. But a “growing number,” according to the study, have put fee equalization in place so participants contribute what they employers believe to be a “fair share” of the expense. In fact, 52% do so.
And there’s some good news regarding about employers in this sector providing employees with assistance in improving their financial readiness for retirement. A strong majority offer one-on-one education meetings for plan participants; 9% offer group education meetings, and even more — 89% — offer them one-on-one. In addition, says the report, “There is no shortage of retirement education materials available, in both print and video format.” In addition, almost 70% offer personalized investment advice, and 23% of those that do not are interested in doing so.