Health care law changes have created an opportunity and a challenge for retirement plan advisers and sponsors, especially in the health care industry. By design, much of the transformation in health care is shifting costs to the employees, to make them more informed and engaged health care consumers. As a result, retirement planning is seen as a competition for dollars instead of being part of a holistic financial picture. Kevin Kidwell, vice president of national-exempt sales for the companies of OneAmerica, spoke with Alison Cooke Mintzer, editor-in-chief for PLANADVISER, about how advisers can help employers and participants navigate the complex decisions of retirement planning.
PA: Changes in health care have opened opportunities in the tax-exempt marketplace—how are advisers and plan sponsors challenged in trying to address these potential opportunities?
Kidwell: With such massive change, we see a great opportunity to work with plan advisers and plan sponsors and help them navigate this new landscape.
Health care initiatives and saving for retirement are national discussions and are central to employer planning and budgeting, particularly for tax exempt employers who have historically offered more generous benefits to offset lower compensation. We are seeing parallels between retirement planning and health care initiatives, in particular a more balanced cost share between employer and employee. Although the health care plan is often viewed as disconnected from the employers’ retirement plan, an employees’ financial fitness and preparedness are key components to the employees’ overall health.
Complexity leads to opportunity and advisers need to understand the impact.
The need to provide comprehensive solutions to the employer has resulted in the evolution from generalist to more focused advisers. I think the opportunity is for the adviser who has more general knowledge of current policy, such as the Patient Protection and Affordable Care Act (ACA) and its impact on employers and employees.
Being able to navigate the broader picture is important. When employees have high-deductible health plans (HDHPs) with health savings accounts (HSAs), they must decide how much to defer into the HSA. As a result of HSA contributions, we have seen some decrease in deferrals to the 401(k) plans and 403(b) plans. Advisers have an opportunity if they can understand both plans. For example, they can demonstrate how an appropriately funded HSA may help a participant avoid loan and hardship distributions from his retirement plan when facing a major medical issue.
PA: What are some unique ways tax-exempt organizations are structuring their retirement plans?
Kidwell: Tax-exempt employers are more challenged than ever to allocate their monies wisely. It is essential for advisers to recognize that retirement programs are more than just a retirement benefit—they are a strategic component of the employer’s budget. The plan is a recruiting and retention vehicle and can also be a way to reward employees.
For example, in trying to control their budget and simultaneously recruit physicians, two of our hospitals added cross-tested components to their employer contribution.
In one case, we had a large hospital—a $250 million plan with 3,000 employees—with a cross-tested plan with five separate rate groups. The employer’s objective was three-fold: lower their marginal cost on new employees entering the plan; optimize contributions from the employer to the physicians; and keep the employer’s budget flat or even reduce its plan contributions.
This was all driven by the health care changes, allowing the hospital to maximize its dollars. The retirement plan went from an employee benefit to a strategic component of the business.