"We struggle here thinking about it," Paulk says. "We are a 125-year-old institution. Johns Hopkins put us here to be an anchor for the city of Baltimore, which he loved. Part of being an anchor is the workforce. … Knowing when they leave us they are still going to have a regular paycheck is important to us. It's tied to our mission."
Yet Paulk knows the numbers are tough to deny. "If we went to a defined contribution plan right now, we'd be paying 4% to 5% of our salary costs into our retirement plan, but last year 9% went to pensions. That's about an extra 4% that we possibly could have used to give bigger raises."
Defined contribution plans
Although federal legislation called the Moving Ahead for Progress in the 21st Century Act will help reduce the amount hospitals have to contribute to their underfunded defined benefit pension plans through 2014, this reprieve will be temporary. Rather than relying on fleeting legislative fixes, many hospitals are moving to a defined contribution plan.
Orlando Health, a 1,780-bed family of facilities located in central Florida, was ahead of the curve when it made the move to a defined contribution plan decades ago. The organization believed traditional pension plans were becoming unsustainable, says Christy Pearson, the system's chief operating officer for human resources.
"Defined benefit plans have really fallen out of favor for not only healthcare but for most Fortune 500 companies" because of the funding challenges they create, Pearson says.
"For an employer, the reality is it is difficult to fund a defined benefit plan," she says, noting that the financial environment for hospitals and health systems is only getting worse. "Healthcare is in an absolute white water right now with changing reimbursement models and the shift from inpatient to outpatient care delivery."
Although Pearson says Orlando Health's decision to move to a 403(b) retirement plan was based on the organization's desire to respond to financial conditions, she believes it is also a win for employees who want more flexibility than a traditional pension plan can offer.