Rethinking Retirement Plans for Healthcare Workers
"Employees in the past tended to stay with healthcare organizations for a very long time. When they stayed with one organization for their career, then a defined benefit plan made a lot of sense. What we see now is more and more people are shortening their careers with an organization and having five to seven employers over their careers, or even looking for multiple careers … With a defined contribution plan, it is easier for employees to take it with them and easier for them to decide their own risk tolerance," she says.
Pearson, who has been directly responsible for recruitment at Orlando Health for 15 years, says the employees she brings on are not surprised or disappointed by the 403(b) plan. "I don't think there is any expectation on the part of new hires that there will be a defined benefit plan. It's not even a blip," she says.
Rather than moving fully to a defined contribution plan, some organizations are now offering their employees a hybrid plan, which combines a defined benefit plan with a 401(k) or 403(b) and generally includes an employer match.
Pittsburgh-based UPMC, which has 4,736 licensed beds and $10.2 billion in annual operating revenue, has had a hybrid program consisting of a cash balance plan and defined contribution plan since 1999, says John Galley, vice president of HR shared services.
"It looks and feels like a defined contribution plan, and it's much simpler than a traditional plan to understand because the retirement benefits are expressed in terms of an account balance," he says. "The account balances have earnings to help employees' benefits grow for retirement. The defined benefit plan earns interest credits while the defined contribution plan earns in accordance with the investments selected by each employee."
UPMC provides a combined retirement contribution of 5.5%–8.0% of salary to employees each year based upon their age and years of service. "By offering a hybrid approach, we can offer a richer benefit to employees than if we were defined contribution alone," Galley says.
Another reason UPMC took this step rather than going solely to a defined contribution plan is that leadership was concerned that employees might not save enough for retirement if left completely on their own to do it.
"The last thing we want is for employees to reach retirement age and not have the wherewithal to retire. It's not good for them, and it's not good for us," he says. "The danger is with employees who don't save anything and don't get the match. They can't retire, and they are going to be an unhappy group."
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