Pension Plans Spell Trouble for Nonprofit Hospitals
"The act requires plan sponsors to use a different formula for determining the discount rate used in calculating required minimum contributions. Based on the current rate environment, that would result in a much higher discount rate in the short term and lower required funding minimums. Many hospitals may even have no contribution requirements in 2013. However, the funding relief in MAP-21 is designed to be temporary and doesn't change the overall economics of pensions," the report states.
Rather than relying on temporary legislative fixes, Sweeney says many hospitals are looking at redesigning their retirement plans and moving away from DB pensions to 401(k) plans.
Sweeney says hospitals are taking two approaches to restructuring pension plans: a soft freeze where the benefit remains in place for current employees but is not offered to new hires, and a hard freeze where accruals are stopped for everyone in the plan, including current employees.
"It takes a while for it to improve the numbers on the pension plan, but we are seeing these kinds of changes at a lot of hospitals," she says.
The healthcare industry lags behind other industries when it comes to redesigning retirement benefits because it did not feel the same economic pinch that many did in the early 2000s when the technology bubble burst, Pierce says.
Now that hospitals and health systems are facing an uncertain financial future as reimbursements shift from a fee-for-service to a value-based model, healthcare executives are rethinking their options for the retirement benefits they offer to employees.
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