Survey Reveals Healthcare Retirement Plans Are Being Redesigned in a Dynamic Market

PURCHASE, NY, October 26, 2009 -- Market volatility and regulatory requirements were the driving forces behind healthcare retirement plan sponsors' actions in 2009. According to a just-released survey of healthcare employers, more than one-third (37%) said that implementing a new fiduciary process associated with the new 403(b) regulations that went into effect earlier this year was their primary challenge. Retirement Plan Trends in Today's Healthcare Market - 2009 was conducted by Diversified Investment Advisors, Inc. (Diversified) and the American Hospital Association (AHA).

According to the survey, the recent market volatility also prompted healthcare organizations to implement various cost cutting measures; for some this included freezing or terminating their defined benefit plans. In 2009, the number of plan sponsors that offer a defined benefit plan declined by 12 percentage points to 39%, compared with 51% in 2008. Another 13% said they expect to freeze their defined benefit plan.

"But these numbers tell only part of the story," said David Ray, vice president and not-for-profit practice leader at Diversified. "Even as healthcare plan sponsors make changes to their defined benefit plans with an eye toward fiscal responsibility in trying economic times, our survey shows they remain committed to helping their employees prepare for retirement."

According to Retirement Plan Trends in Today's Healthcare Market - 2009:

• Plan sponsors offering a 401(a) plan increased to 31% from 25% in 2008. The number of 401(a) plans had remained flat since the 2005 iteration of the survey.
• 59% of plan sponsors that currently offer a defined benefit plan do not expect to make any additional changes to their plan in 2009.
• Plan sponsors eliminating (4%) or reducing (8%) the employer contribution to their defined contribution plans are in the minority.
• Many plan sponsors maintain multiple defined contribution plans. In fact, 77% of healthcare plan sponsors surveyed offer a 403(b) plan, the most prevalent defined contribution plan; 62% offer a 457(b) plan, and 41% offer a 401k plan.
• 11% of plan sponsors currently offer a Roth 403(b) plan, a three percentage point increase from last year.
• The vast majority (86%) make employer contributions to their defined contribution plans, with matching contributions being the most prevalent method (71%).
• Improving employee education remained a top priority for 72% of plan sponsors.
• While the adoption of automatic services did not change dramatically over the course of the last year, automatic enrollment increased only two percentage points to 31% this year; the use of automatic deferral escalation remained flat at 16%.

"In a year where plan sponsors were adopting cost cutting measures, healthcare plan sponsors may have been concerned about automatically taking money out of employee paychecks," noted Ray. "Despite this, there was only a modest decline in participation rates across all defined contribution plans-68% now versus 70% a year ago.

Other key survey findings included:

• Despite the market volatility, overall contribution rates experienced only a modest decline in the last year. There is a one percentage point decrease in the salary deferral rate among highly compensated employees since last year.
• Across all plan types, 82% of plan sponsors permit participants to take loans from their account, a seven percentage point increase from 2008. Despite this, only 7% of participants have outstanding loans, a figure that has remained unchanged for the last four consecutive years.
• Surprisingly, given the current economic climate, outstanding loan balances decreased for the second consecutive year. The median loan balance is $3,834.

"The impact of the new 403(b) regulations and the recent market volatility on plan sponsors was tangible in the last 12 months as healthcare employers focused their attention and resources on meeting those demands head on," noted James Wadzinski, vice president, AHA Solutions, Inc. "These factors combined with heightened fiduciary concerns led more plan sponsors to retain a retirement plan advisor, with three-quarters of plan sponsors now having one.

"In addition, 21% of plan sponsors consolidated the number of vendors used and 20% converted to a single vendor arrangement, while many also take advantage of outsourcing such services as loans (53%), hardship withdrawals (45%) and QDROs (42%). As in years past, the survey results have underscored the value healthcare employers place on outside resources so that they can better focus on the delivery of healthcare services," Wadzinski added.

"While the last year has not been without its challenges, healthcare plan sponsors are committed to helping employees work toward a financially-sound retirement. By making strategic plan changes, they are able to manage the increased fiduciary requirements in a more stringent regulatory environment while making fiscally sound decisions," said Ray.

Retirement Plan Trends in Today's Healthcare Market - 2009 is the seventh 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 246 healthcare plan sponsors nationwide responded to the survey during the second quarter of 2009. To request a copy of the survey report, please visit www.aha-solutions.org or call 800-242-4677.

About AHA

The American Hospital Association (AHA) is a not-for-profit association of healthcare provider organizations and individuals that are committed to the health improvement of their communities. The AHA is a national advocate for its members, which includes nearly 5,000 hospitals, healthcare systems, networks, and other providers of care. Founded in 1898, the AHA provides education for healthcare leaders and is a source of information on healthcare issues and trends. For more information, visit the AHA Web site at www.aha.org.

About Diversified Investment Advisors, Inc.

Diversified Investment Advisors, Inc. is a national investment advisory firm specializing in retirement plans. The company's expertise covers the entire spectrum of defined benefit and defined contribution plans, including: 401k and 403(b) (Traditional and Roth); 457; non-qualified deferred compensation; profit sharing; money purchase; cash balance and Taft-Hartley plans; and rollover and Roth IRA. Providing comprehensive plan administration, investment and communication services for mid- to large-sized organizations, Diversified helps more than 1.5 million participants save and invest wisely for and throughout retirement. Headquartered in Purchase, NY, the company's regional offices are located in Arkansas, California, Illinois, Iowa, Louisiana, Maryland, Massachusetts, New York, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Utah and Wisconsin. To learn more, visit www.divinvest.com.

About The Retirement Research Council

The Retirement Research Council, the research group of Diversified Investment Advisors, is dedicated to:

• Providing retirement plan sponsors and their advisors with comprehensive benchmarking information;
• Detailing trends to assist with the strategic evaluation of retirement plans; and
• Documenting a comprehensive picture of the retirement plans market today and in the future.

Drawing on over 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.

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