In an effort to assist employees in preparing for retirement, UPMC automatically enrolls them in the cash balance plan and escalates their retirement credits throughout the course of their employment.
Despite the transition in plan design, UPMC has still faced challenges with fully funding its pension. "We have had to fund the plan at greater levels," Galley says, noting that the organization contributed $148.5 million to keep the plan fully funded in 2012. "Certainly, declining interest rates have increased our liability."
New Albany, Ind.–based Floyd Memorial Hospital and Health Services, a 236-staffed-bed institution with a budgeted gross revenue of $905 million, moved to a hybrid retirement plan in 2010 because its liability grew too much in the mid-2000s due to low discount rates, says Edward Miller, the organization's vice president of finance and CFO.
"In the late '80s and '90s when the market was roaring, we didn't make contributions to our pension plan because we didn't need to. Our assets were growing faster than our liabilities," Miller says. "We thought it would come back, but it didn't, so we made this change."
Because the defined benefit piece of its retirement package is underfunded, Floyd Memorial is contributing $200,000 per month and has plans to increase that amount. "Now we are at a point like many individual investors of investing a set amount into the pension plan each month," Miller says.
For the 403(b) part of its hybrid plan, Floyd Memorial matches up to 50% of the first 4% that an employee contributes to an account, which keeps the system competitive in its region.
"Our human resources team did a great job of looking at the market and saw we had the richest benefits plan in the area. We wanted to move away from that to being one of the richer plans, but not the richest," Miller says. "We knew that if we kept our defined benefit plan in place, it would really absorb our ability to give pay increases."
As part of its long-term financial plan around its retirement package, Floyd Memorial has also made a downward adjustment to the returns it expects its assets to realize, Miller says.
"The assumption we use now is a 7% return," he says.
This article appears in the November issue of HealthLeaders magazine.