Empire Health Services to freeze pensions

Empire Health Services will freeze its pension plan on April 1 as part of a retirement benefits overhaul and offer a larger dollar-match for popular tax-deferred savings accounts.

The changes were outlined in a booklet mailed to about 2,500 employees of Deaconess Medical Center and those at Valley Hospital and Medical Center last week. An executive team met with about 100 employees in focus groups last year and kept notes of informal inquiries that suggested employees were eager for more control of their retirement planning and did not understand the promise of the pension plan.

Ending or revamping pension plans is reflective of actions at large, established companies throughout the country, said Eric Grant, a principal with Mercer, a large human resources consulting company. He pointed to such Fortune 500 companies as General Motors Corp., IBM Corp., and Hewlett Packard Co.

Pensions are losing favor to 401(k) and 403(b) accounts that allow employees to invest part of their salary before it is taxed. The money invested grows tax-deferred until withdrawn. It is then taxed as income. The two plans are similar — 401(k) funds are used by businesses, and 403(b) plans can be offered by nonprofits such as hospitals and public school systems.

Companies often match a percentage of the salary employees invest and cover overhead costs. An attractive feature of such plans is the employees’ ability to take their retirement plan money with them to a new job.

Andrea Farmer, Empire’s benefits and compensation manager, said the changes were vetted by a select group of employees, including those with many years of service and others newly hired. The response indicated it was time for a change.

Some employees, however, are surprised.

“No one had a conversation with us about these changes,” said Sharon Kile, a radiology technologist who has worked at Deaconess for 33 years. “I’m a little concerned. Wouldn’t you be?”

She hadn’t calculated whether the changes would be good for her retirement planning and said she would have preferred if management had held listening sessions with employees to solicit feedback before making a decision.

In 1967, Empire began offering a traditional defined benefit pension plan which allowed employees to contribute to it.

Tax laws led to a plan fully financed by Empire which automatically enrolled most workers beginning in 1987, said Empire benefits specialist Barb Brown. That is when Empire began offering its 403(b) plan.

Brown said the pension plan has been an important and generous retirement tool for many years, but predicted the change would be welcomed by employees.

In its 2004 filings with the Internal Revenue Service — the most recent available for public inspection — Empire had more than 3,300 pension plan participants. The plan had about $57 million in assets and was considered adequately funded. It remains well-funded, Brown said.

Deaconess and Valley have been trying to put together a pay-and-benefits package that rivals regional competitors such as Sacred Heart Medical Center and helps attract and retain employees.

Hospital executives called it “Total Rewards,” a plan torn right out of the Mercer playbook that attempts to balance a new, attractive employee package of pay, benefits and retirement while at the same time boosting business profitability.

Changes to retirement planning happened a bit differently at Sacred Heart Medical Center nine years ago.

Sacred Heart had offered a traditional pension plan to employees until the late 1990s, said Patrick Clarry, vice president of human resources.

Along with its sister hospital Holy Family, Sacred Heart gave employees at the time a choice: they could remain in the traditional pension plan and continue to depend on it for a monthly retirement income, or they could switch over to a new 401(a) cash balance account in which the hospital contributed the equivalent of 5 percent of an employee’s salary into a tax-deferred retirement account. All new employees were offered participation in the 401(a) plan.

“The financial world is different than it was in the 1950s and 1960s … when these pension plans were so popular,” Clarry said.

Among the big changes is that people are more likely to change jobs and want to take their money with them. After a vesting period of five years, employees participating in the 401(a) plan at Sacred Heart can access the money if they are no longer employed by the hospital.

Employees do not actively manage the money set aside for them in either the traditional pension plan or the 401(a).

As a second retirement perk, Sacred Heart and Holy Family offer a 403(b) plan. Clarry said Sacred Heart and Holy Family match 50 cents of every dollar an employee invests in the 403(b) based on years of service. For employees with five years or less, the 50-cent match is up to 3 percent of salary. For employees with five to 10 years of service the 50-cent match is offered on the first 4.5 percent invested. For employees with more than 10 years, the 50-cent match is offered up to 6 percent.

Empire spokeswoman Christine Varela said Empire’s dollar-for-dollar match up to 4 percent was not an attempt to best Sacred Heart, but rather a response to a competitive job market and good business sense.

“It’s what we needed to do and we think the changes will be positive,” she said.