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.