SEI Quick Poll: Healthcare Organizations Cite Investment Volatility and Expense as Drivers of Pension Decisions
Despite the fact that the healthcare industry has historically valued theDB plan as a key part of employee benefits, organizations within this industryare increasingly challenged to control the pension impact on overall corporatefinances. Of all of the organizations polled, 48 percent said that eliminatingor reducing investment volatility is a key driver in making a change and 47percent said the goal was to eliminate or reduce costs. A significant portion(22 percent) said the organization's Board had asked for an evaluation.
"Volatility in the pension plan is just one example of how anorganizational asset pool can impact corporate finances," said Jim Morris,SEI's Senior Vice President, Global Institutional Solutions. "Withinhealthcare, increased organizational scrutiny has resulted in a focused effortto control the risks that portfolio decisions for balance sheet and non-balance sheet assets can present to the organization."
The types of healthcare organizations polled included healthcare systemsconsisting of multiple hospitals or clinics (48 percent), stand-alonehospitals or clinics (47 percent) and hospital affiliated educational programs(5 percent). The poll suggests that healthcare organizations are consideringplan design changes in anticipation of the Pension Protection Act to be phasedin starting in 2008. Rules will require 100 percent pension funding status.According to the poll, on an Accrued Benefit Obligation (ABO) basis, less than20 percent of those polled are currently at or over 100 percent funded -- andmore than a third are under the 90 percent funding point.
SEI's survey is evidence that change in the DB healthcare space islooming. Of the organizations whose DB plans were still active, more thanhalf said they were considering a design change. Even more, if theorganizations currently considering freezing their accruals actually end updoing so, more than half of the pensions polled will have frozen accruals. Twothirds plan to make the change within the next year.
The poll shows that 62 percent have already or are considering definedcontribution (DC) as an alternative solution, while 25 percent said they arenot considering a replacement in lieu of the phase-out.
The poll, administered by SEI's Pension Management Research Panel,surveyed executives responsible for overseeing defined benefit (DB) plans for73 different healthcare organizations across the United States ranging from$30 million to over $1 billion in pension assets. None of the companiessurveyed were SEI institutional clients. A complete summary of the poll isavailable by emailing firstname.lastname@example.org.
About SEI's Institutional Group
SEI's Institutional Group delivers integrated retirement, healthcare andnonprofit solutions to over 490 global institutional clients (330 U.S.institutional clients) in seven different countries. SEI enables clients tomeet financial objectives, reduce business risk, and fulfill their duediligence requirements through implemented strategies for the management ofdefined benefit plans, defined contribution plans, endowments, foundations andother balance sheet assets. For more information, visithttp://www.seic.com/institutions.
SEI (Nasdaq: SEIC) is a leading global provider of outsourced assetmanagement, investment processing and investment operations solutions. Thecompany's inno
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