Diversified/AHA Survey Reveals that Cost Cutting Measures and Need for Improved Plan Management Drive Retirement Plan Changes

HARRISON, NY, October 07, 2010

Regulatory changes and the effects of the economic downturn are prompting healthcare employers to alter their retirement plan designs and provisions. According to a new survey of healthcare employers, defined benefit (DB) plan sponsors are making changes to their plan as a result of excessive contribution amounts (57%), the bear market (33%), administrative costs (19%) and Pension Benefit Guaranty Corporation (PBGC) premiums (14%). The survey also revealed more stringent age and service requirements among defined contribution (DC) plans. Retirement Plan Trends in Today's Healthcare Market - 2010 was conducted by Diversified Investment Advisors, Inc. (Diversified) and the American Hospital Association (AHA).

"We are seeing the trend of recent years continue where plans are being redesigned in a dynamic market," said Laura White, vice president at Diversified. "Our survey report underscores how the need for plan sponsors to cut costs and better manage their plans has been a driving force behind retirement plan changes by healthcare organizations in 2010. While the healthcare segment represents just 10% of all not-for-profit plans, they account for nearly one-quarter of all not-for-profit plan assets and more participants than any other segment. As a result, the changes being made to their retirement plans are a good barometer for what's happening in the not-for-profit segment overall."

According to Retirement Plan Trends in Today's Healthcare Market - 2010:
• Seven percent of healthcare DB plan sponsors expect to freeze their plan and 7% expect to move from a traditional DB to a hybrid plan.
• Six percent each said they would hire a consultant to develop a strategy for their DB plan, enhance their DC plan to compensate for a DB plan termination or freeze, reduce plan benefits or renegotiate their DB plan costs.

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• The 403(b) plan continues to be the most prevalent DC plan available, with 84% of healthcare plan sponsors offering one. It also continues to be the type of plan with the largest number of participants (with 77% percent of respondents confirming this in 2010 versus 67% in 2009).
• More employers are imposing an age requirement of 21 years for plan entry (40% in 2010 versus 36% one year ago).
• Service requirements for plan entry and receiving employer contributions have become more stringent. Twenty-three percent of plan sponsors now require more than one year of service for plan entry compared with just 10% last year. Similarly, 41% require more than one year of service to receive employer contributions, a 4% increase over last year and 9% more than two years ago.
• Eighty-three percent of plan sponsors make employer contributions to their defined contribution plan, a three percentage point decline from one year ago. Among sponsors making contributions, 58% make fixed contributions and 25% make discretionary contributions. This year marks the second consecutive year with a marked increase in the use of discretionary contributions.
• Employer contributions had a significant impact on plan participation rates. Plans with employer contributions experienced a median participation rate of 75%, more than double the participation rate of plans without an employer contribution.
• Seventy-nine percent of plan sponsors currently employ a retirement plan advisor, up 3% from last year.
• Vendor changes are on the rise this year as well, with 11% changing recordkeepers, 9% consolidating recordkeeping for multiple plans; 8% changing advisors and 4% each reducing the number of providers and consolidating investments for multiple plans.
• This year's survey also showed that overall 72% of plan sponsors outsource some aspect of their DC plan management to their retirement plan provider in the form of loans (52%), hardship withdrawals (50%), qualified domestic relations orders (37%), and enrollment (37%).

The financial pressures of the economic downturn have been difficult for hospitals in many areas.
"Attracting and retaining talented and skilled employees has long been a top priority at hospitals," said James Wadzinski, vice president, AHA Solutions Inc. "With the economic downturn, hospitals have taken a close look at their existing plans to ensure they are being fiscally responsible, while also maintaining a high level of benefits for the caregivers who work there."

New regulations coupled with the need to focus on the delivery of health care finds many plan sponsors looking to outside resources for guidance. For example, the Department of Labor's required audits for plans with more than 100 employees has 48% of healthcare employers turning to their accountant to conduct their plan audit. Thirteen percent will rely on their retirement plan provider to arrange for an audit and 19% will hire a new auditor. More than one-third are unsure of the costs associated with conducting a plan audit.

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Automated Services Still Impact Participation
Automatic services continue to garner attention. Retirement Plan Trends in Today's Healthcare Market - 2010 revealed:
• Auto services are effective in spurring participants to save more money for retirement. Plans with auto enrollment reported a median participation rate of 80% versus 53% for plans without auto enrollment. Plans that provide automatic deferral rate escalation report higher average account balances, $25,569 as compared to average account balances of $23,877 for all plans.
• This year 29% of healthcare employers said they auto enroll employees and 14% offer automatic deferral rate escalation, both of which declined two percentage points in the last year.
• There is a slight decline in the use of investment solutions. Fifty-three percent offer investment advice compared with 60% in 2009; 41% offer managed accounts as compared with 46% last year, and 20% offer a lifetime income or annuity product compared with 21% one year ago.
• On a positive note, this year, 12% of plan sponsors that use automatic enrollment default participants at a contribution rate of 5% or higher, compared with 4% a year ago. Plans that use a default contribution of 3% or less declined to 74% from 80% a year ago. This is a noteworthy change that is expected to improve retirement funding for auto enrolled participants in these plans.

"The use of automated services and its impact on employee participation is an excellent example of just how employers are trying to find a balance between operating in a challenging, highly regulated environment with pressures to manage expenses and meet their fiduciary requirements and their commitment to helping employees save and invest for their retirement," explained Brodie Wood, vice president and not-for-profit practice leader at Diversified. "By making adjustments to their retirement plans in terms of what they offer and how they are administered, employers are striking that right balance."

Retirement Plan Trends in Today's Healthcare Market - 2010 is the eighth annual survey conducted by Diversified and the AHA. The study focuses on healthcare organizations' defined contribution and defined benefit retirement plan characteristics. A total of 192 healthcare plan sponsors nationwide responded to the survey during the second quarter of 2010. To request a copy of the survey report, please visit http://www.aha-solutions.org or call 800-242-4677.

About AHA
The American Hospital Association (AHA) is a not-for-profit association of health care provider organizations and individuals that are committed to the health improvement of their communities. The AHA is the national advocate for its members, which includes more than 5000 hospitals, health care systems, networks, and other providers of care, and 38,000 individuals. Founded in 1898, the AHA provides education for health care leaders and is a source of information on health care issues and trends. For more information, visit the AHA Web site at http://www.aha.org.

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About AHA Solutions, Inc.
AHA Solutions, Inc. is a resource to hospitals pursuing operational excellence. As an American Hospital Association (AHA) member service, AHA Solutions collaborates with hospital leaders and market consultants to conduct product due diligence and identify solutions to hospital challenges in the areas of finance, human resources, patient flow and technology. AHA Solutions provides related marketplace analytics and education to support product decision-making. As a subsidiary of the AHA, the organization convenes people with like interests for knowledge sharing centered on timely information and research.

AHA Solutions is proud to reinvest its profits in the AHA mission: creating healthier communities. For more information, contact AHA Solutions at (800) 242-4677 or visit http://www.aha-solutions.org.

About Diversified Investment Advisors, Inc.
Diversified Investment Advisors, Inc. is a leading provider of customized retirement plan administration, participant communication and open architecture investment solutions for mid- to large-sized organizations. The company's expertise covers the entire spectrum of defined benefit and defined contribution plans, including: 401(k) and 403(b) (Traditional and Roth); 457; nonqualified deferred compensation; profit sharing; money purchase; cash balance and Taft-Hartley plans; and rollover and Roth IRA. Diversified helps more than 1.7 million participants save and invest wisely for and throughout retirement.

Headquartered in Harrison, NY, the company's regional offices are located in Arkansas, California, Florida, Illinois, Iowa, Louisiana, Maryland, Massachusetts, New York, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Utah and Wisconsin. To learn more, visit http://www.divinvest.com.

About The Retirement Research Council
The Retirement Research Council, the research group of Diversified Investment Advisors, is dedicated to:
• Drawing a comprehensive picture of the private retirement plans market;
• Detailing trends to assist with the strategic evaluation of retirement plans; and
• Providing retirement plan sponsors and their advisors with comprehensive benchmarking information.

Drawing on more than 50 years of experience in retirement plan management, we periodically assemble a panel of experts from all facets of the retirement plans market to evaluate the current and future impact of trends shaping our industry.