Benefits and Compensation

Health System Says ‘Simple Is Better,’ Even When Plans Are Complex

If you specialize in employee benefits, it’s a given that you find the topic to be interesting, at least to some degree. It’s equally certain that most of the employees who participate in the plans do not share your enthusiasm. Ever seen that glazed-over look in someone’s eyes when you explain the finer points of a defined benefit plan? Then you understand the reference.

When plans are particularly complex, then, how can you really reach participants with the information they need, ensuring they both understand and appreciate their benefits? That was the dilemma faced by Parkland Health and Hospital System, says Jim Johnson, director of Benefits, Compensation, and HRIS. Parkland offers multiple plans and must ensure they are understood by a variety of non-native-English speakers.

Health System Opted out of Social Security

To set the tone, Johnson explains the first layer of Parkland’s retirement program. It is a defined benefit plan, designed to replace employees’ Social Security income. This kind of plan was available for a limited time, starting in 1982, to government employers, says Johnson. It allowed them to opt out of the Social Security system, if they provided a replacement plan for their employees. Parkland did so right away, as did many other governmental employers. In fact, the program proved so popular that it was feared too many employers would likewise opt out of the system. So, after just 3 years of availability, the program ended.

In general, people understand what Social Security will provide for them at their retirement. Covered Parkland employees will not receive Social Security benefits, so Johnson says management feels a special responsibility to educate employees about what they can expect. “Because we do not participate in Social Security, we feel it is even more crucial that the employee understands exactly what we offer them.”

Like Social Security, Parkland’s plan is contributory. But instead of Social Security’s 6.2 percent contribution—required from both employer and employee—employees must contribute only 4.5 percent of their pay. Parkland contributes, tÍoo, based on a final average pay formula. Lower contributions mean that both participants and the health system have realized significant savings since the plan’s inception.

“We’re probably reaching an amount somewhere around half a billion dollars in savings since inception of the plan,” Johnson says, “compared to what Parkland would have paid into the Social Security program. And, the benefit structure is equal to or greater (sometimes substantially greater depending on your pay) than the Social Security program. We all save an awful lot of money each year by not participating in Social Security.”

The next layer in Parkland’s retirement program is an alphabet soup of retirement plans: a 403(b) plan, a Roth 403(b), a 457 plan, and a 401(a) plan. The problem with explaining all of these to the average employee is obvious. “Especially,” says Johnson, “because we have an incredibly diverse work group at Parkland, with over 40 languages spoken.”

Appreciation Comes From Understanding

At the same time, though, it is critical that Parkland’s employees view the plans as important, especially considering the expense involved in replacing healthcare workers. “I think everyone knows, and particularly in the medical field, the cost of turnover is very high. One percent turnover within Parkland Hospital represents almost $3 million in costs to us,” Johnson says. “In fact, we calculated our cost for one percent first-year turnover alone—turnover of those employees who start and terminate with less than 1 year of service—to be about $600,000 per year.”

Those numbers mean that spending money to inform and engage employees about the value of their benefits yields a very respectable return-on-investment for Parkland. The health system does not view the expenditure as frivolous, or even optional, Johnson says, “You can have an average benefit structure and still get great results if you communicate it well.”

Mark Trieb, a managing principal and consulting actuary at Milliman helps Parkland with its retirement program. He agrees with Johnson that “The time to be participating in a retirement plan is not geared by whether the economy is doing poorly or doing well. Helping employees understand the plans can be cost effective, and I think it has been for Parkland. Employees appreciate it. And that is one of Parkland’s objectives: to make sure employees understand the plan so that when they’re looking at their options, considering going to work for another hospital, they factor these things into their decision-making process. They understand that Parkland provides them a great benefit program.”

Trieb says that Parkland’s complex set of retirement plans is made a little simpler through the use of a master trust, where monies from all the plans are held. “We packaged the plans under an umbrella called the supplemental plan, and put it in a master trust. So from an accounting standpoint, the participant sees one ‘plan’ with different money types in it. They have matching contributions, a regular deferral, and a 457-plan deferral. So if they max out their deferral under one plan, because it is all held in the master trust, we just roll the excess into the other plan and defer it there.

“They don’t have to worry about which plan is which. For this kind of program you really need to use a master trust. Otherwise you’re going to have disjointed recordkeeping with multiple plans in multiple trusts.”

Johnson says this strategy simplifies what would otherwise be a very complex program. “They understand it to be the supplemental plan, rather than separate plans qualified under these various tax code sections,” he says. “You lose the average employee if you start communicating all these various code sections to them.”

Keeping It Simple Promotes Self-Education

Employees who want to know where they will stand when they retire simply log on to Parkland’s intranet site, add a few variables to their retirement calculator, and receive a projection of their retirement income.

“With Milliman we have total retirement outsourcing, and everything is consolidated from the employee’s point of view,” Johnson says. “When they go into the website, they see a defined contribution plan and a defined benefit plan. Their personal information is already there, with the exception of a few variables like future employment and average salary increases.”

Employees appreciate the website, as evidenced by the utilization. “We’re kind of shocked at how high the utilization is,” Johnson reports. “We have about 9,300 employees, and for our overall benefits website we have many thousands of hits. It’s just amazing how many.”

This kind of use means that employees are educating themselves about their benefits, Johnson says. “Each year we survey employees, asking some pointed questions to see if they really do understand the plan,” Johnson says. “If they answer a certain way, we know they don’t really understand. In the last 4 or 5 years, we’ve seen a substantial increase in employee knowledge about the plans.”

Their retirement and communication strategy has received notice outside the health system, too. Parkland Health and Hospital System was one of Plan Sponsor Magazine’s finalists for 2009 plan sponsor of the year, based on its ability to communicate a very complex program in a simple way.

While your company’s program may not be so complex, you can take a page out of the Parkland playbook and remember that simple is often better. Maybe your employees will come to appreciate their benefits in a whole new way.