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Hospital Benefit Plans Weigh Retirement Options

John Commins, for HealthLeaders Media, August 13, 2010
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The nation’s not-for-profit hospitals are among the last bastions of defined-benefits pensions, those comforting throwbacks to another time when many workers stayed with the same company from their first day of orientation to their retirement dinner.

The job expectations of employees, and the demands of the workplace, have changed a lot in the past 50 years, and it might make sense for nonprofit hospitals to question the value of defined-benefits plans as a recruiting and retention tool.

And yet they endure.

Standard & Poor’s Director Liz Sweeney says that only 40 of the 615 not-for-profit hospitals and health systems that she speaks with either have abandoned or never had defined-benefits plans altogether, and offer their employees only defined-contribution plans.

“There are also a lot of health systems either making benefits changes like freezing the plan to new entrants or freezing the plan for all beneficiaries,” she says.

Defined-benefits plans aren’t doing too well these days. Towers Watson, the finance and risk management company, reported last year that the nation’s 100 largest corporate pension plans lost more than $300 billion in 2008, shifting from an $86 billion surplus at the end of 2007 to a $217 billion deficit at the end of 2008, with aggregate funding levels falling from 109% to 79%. The drop meant that those companies had to increase cash contributions by 50%—about $28 billion—in 2009 to meet future requirements. With losses like that, it’s not surprising that Towers Watson also found only 17 of the nation’s Fortune 100 companies still offer new hires traditional defined-benefits plans, while 58 offer new hires only defined-contribution plans.  

Jon Waite, director of investment management advice and the chief actuary for SEI Institutional Group, says the market fluctuations put employers on the hook for losses, and the escalating costs of defined-benefits plans have prompted many hospitals to look for a way out.

“Are they going to keep them open to new hires, or are they going to grandfather in people who’ve already had it?” Waite says. “Then you end up with different groups of employees working side by side, the ‘withs’ and ‘withouts.’ It’s not insurmountable, but it’s something that the organization, particularly the HR side, needs to be keenly aware of.”

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