New Voya research examines the state of health care retirement plans
How benefits professionals in the health care industry can help employees be more financially well
Written by Mathew Greenwald, Greenwald Research
Voya Financial®, in collaboration with the American Society for Health Care Human Resources Administration (ASHHRA), recently conducted its biennial study of retirement plans in the health care sector about key issues impacting the structure and management of their defined contribution retirement plans. The research1 was administered by Greenwald Research on behalf of Voya. Here are some highlights and insights – and actions organizations can take.
Top four research takeaways for health care organizations
- Healthcare employers need help maximizing the effectiveness of their plan
- Plan design mechanisms are currently underutilized
- Employees need access to intelligent decision-making tools and assistance
- The retirement plan provider can become a strategic partner
The past two years have been exceptionally challenging for health care organizations, which has left many searching for ways to respond. The research explores how retirement plan decision-makers in these organizations have responded – and provides steps health care organizations can take to help meet the new challenges they confront.
Brodie Wood,2 national practice leader of Voya’s health care business, observed that when the pandemic first emerged, the problems created reduced the priority of the retirement plan for many health care organizations as they were besieged by many other issues.
“Now is the time to give retirement plans a higher priority, because these plans can contribute meaningfully to the challenges these organizations are facing,” Wood said.
Voya’s new research shows the increased priority health care organizations have given to retirement plans. Let’s touch on what further steps the health care sector can take with their retirement plan, and in other ways, to respond to the challenges COVID-19 has induced.
Three key challenges in the wake of COVID-19
Over the past two years, health care organizations have been hit by three tidal waves:
- The pandemic led to an overwhelming demand for health care services, stretching and stressing the capacity of many hospitals and other facilities.
- Not only were staff stressed at work they were stressed outside of work by numerous factors including: the threat of COVID-19 to themselves and their families, the pressure of expanded childcare responsibilities as schools closed and children had to learn at home, and inflation stressing family budgets.
- The twin staffing pressures of attracting new talent and retaining talent, as a variety of factors prompted early retirements and increased competition for labor. This problem was, perhaps, most significant with registered nurses, due in part to the increased tendency for nurses to become traveling nurses with a major increase in compensation.
These factors had several significant impacts. They led to an increase in mental health issues among staff as many faced higher stress both at work and at home. In addition, these factors increased labor costs and led to short staffs in crucial areas, putting a further burden on those still on the job.
To meet today’s challenges, it’s important for health care organizations to allocate the proper resources and make the necessary adaptations, including through the retirement plan.
Top four research takeaways for health care organizations
1. Health care employers need help maximizing the effectiveness of their retirement plan
Nearly nine in 10 (88%) retirement plan decision-makers feel their retirement plan helps attract and retain high quality employees. A key issue is how to maximize the effectiveness of the plan to accomplish these goals.
New employees tend to focus on the immediate value of a compensation package. There is sometimes less appreciation among early career job candidates in a retirement plan benefit that can provide a financially secure retirement in 30 or 40 years. So, the focus of early career job candidates is the employer matching contribution and the vesting schedule. Thus, in seeking to be competitive, employers should focus on plan design and have a compelling retirement plan match program.
Key steps to consider:
- Adopt a stretch match: Some organizations may find it valuable to consider a “stretch match” which seeks to incent a higher employee salary deferral contribution level. For example, instead of matching 100% of the first 3% of salary contributed into the plan, revise the match to 50% of the first 6% of salary contributed. The maximum percentage of salary matched remains the same – 3%. But participants must contribute more to obtain that 3% employer contribution. A stretch match is likely to be effective in motivating more saving.
- Develop a total compensation statement: Some health care organizations have found it useful to have a total compensation statement that clearly communicates the total value of the employee benefit package, including the retirement plan, so employees can clearly see the entire value the organization is providing for them. Be sure to design a total compensation statement that communicates the full, overall value of benefits effectively.
2. Retirement plan design mechanisms are currently underutilized
Plan design mechanisms are underutilized and have the ability to help employers meet their retirement plan goals.
The survey found that decision-makers measure the success of their retirement plan through the financial wellness of their employees, participation rate and retirement readiness. There are two keys to achieving these important plan goals:
- comprehensive use of automatic defaults and
- educational efforts that effectively integrate in-person and virtual meetings.
Key steps to consider:
- Include auto enrollment: We have learned that default programs can work very well. Automatic enrollment can be effective in gaining high participation rates and automatic escalation programs can be effective in increasing deferral rates. Yet the Voya research shows that many health care organizations are not using these mechanisms. There is fairly good use of auto-enrollment, but only a minority of firms are using auto-escalation which can also be a valuable tool.
Even fewer organizations are using automatic re-enrollment. There are different types of automatic re-enrollment. The simplest is to take the people who opted out of auto-enrollment in the prior year and automatically enroll them again the following year. These people can still opt out. But some who opted out the first time do not opt out the second time and this default option can be effective.
- Educate employees virtually and in person: Effective education is vital. During the pandemic, many organizations learned how to communicate virtually – it is incumbent to continue to develop a hybrid in-person/virtual strategy to increase the ability to educate and motivate.
Virtual meetings can lead to a more informed and motivated participant base who will do a better job of saving and investing for retirement. The task is to integrate these meetings with an in-person program, which can lead to educational effectiveness that will exceed pre-pandemic levels.
3. Offer employees access to effective decision-making tools and assistance
Look to innovative new tools that are designed to help employees connect and use their benefits more effectively.
Employees face complex decisions about how to use all their employee benefits in a way they can afford, and which best meets their needs. For example, they must decide how much to put into their retirement plan, which health insurance option to choose, and how much to put into different voluntary coverages, such as life insurance and disability insurance.
These are complex decisions and many employees, especially younger employees, struggle with them and there is evidence that many make decisions that are sub-optimal. There is also evidence that many employees would value help from their employers in making decisions about employee benefits.
Key step to consider:
Offer an allocation decision-making tool: This type of tool is designed to help employees decide how to allocate an oftentimes limited budget among the options available to them in a way that best fits their circumstances and needs. The decision-makers we interviewed think this tool can be very valuable.
As one interviewee said, “Those kinds of tools will give them [the employees] a basis to develop some kind of plan as to how much to set aside for their retirement.” Our research indicates this tool can provide substantial help to those who work for health care organizations and employers should evaluate them.
4. Health care organizations should make their retirement plan provider a strategic partner
The Voya research shows that most retirement plan decision-makers lean on their plan providers a great deal. They want the plan provider to make sure the retirement plan is running well by:
- Properly servicing the plan, including participant service requests
- Helping educate plan participants
- Making sure they are compliant and meeting the requirements of their plan documents
- Effectively implementing the plan
- Proactively communicating with the employer
- Keeping them informed of regulatory changes
- Ensuring all data is secure
Many of these decision-makers also want even more from their plan provider to help them make sure their plan:
- changes with the times,
- stays competitive and
- takes advantage of new developments.
Several decision-makers interviewed said they do not want their plan to be put on “auto-pilot.” They want to set their retirement plan on a strategic path to change with the times and become increasingly effective in meeting their organization’s objectives for the retirement plan.
There is clear recognition that a good plan provider is knowledgeable about new developments in the area and best practices. The plan provider can play a crucial role as a strategic partner to the plan sponsor, helping guide the retirement plan forward.
Key step to consider:
- Schedule an annual strategic meeting: A key issue is how plan providers and retirement plan decision-makers can best work together to set the plan on an effective strategic path and make sure it adapts to new developments and needs. A couple of the retirement plan decision-makers interviewed commented they have strategic meetings once a year, sometimes off-site, in which they just have a brainstorming session with their plan provider.
The focus is on thinking creatively about the strategic plan for the defined contribution plan and how it can be achieved. This type of session is one pathway to maximizing the value a plan provider can bring to a health care organization.
Want to learn more about the evolving benefit needs of health care workers? Send an email to Brodie Wood to request a full report or to discuss findings. Or explore this overview of Voya’s health care study results.
1 The Voya survey understanding the challenges and priorities of plan sponsors in the health care market was administered by Greenwald Research. The survey consisted of two phases including: an online survey conducted Feb. 4, 2022-March 8, 2022, among 214 retirement plan decision-makers from health care organizations that offer a defined contribution retirement plan, along with seven 40-minute in-depth interviews with decision-makers across small, mid-size and large rural, regional, and nationwide health care organizations conducted March 2022.
2 Registered representative of Voya Financial Advisors, Inc. (member SIPC).
This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice. All investments are subject to risk. Please consult an independent legal or financial advisor for specific advice about your individual situation.
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Greenwald Research is a separate entity and not a corporate affiliate of Voya Financial.