D-H Moves Freeze Date For Pensions

Valley News Staff Writer
Thursday, December 29, 2016

Lebanon — At the end of January, pension benefits will no longer increase for any of the more than 5,000 current and former Dartmouth-Hitchcock employees who participate in the health system’s traditional “defined benefit” retirement plan, officials have informed employees.

D-H will move up by 11 months an already announced “freeze” to the health system’s pension plan and complete a transition that began a decade ago in a reaction, according to D-H, to “the instability of the financial markets.”

Benefits already accrued by retirees and current employees will not be affected, but under the freeze there will be no future increases in the pensions of those still working.

The move is expected to save D-H some money without reducing the benefits of pension participants, according to Rick Adams, a spokesman for the health system.

“Accelerating the freeze date allows D-H to spread plan costs over a longer period of time,” he said in an email.

Only current and former employees who started work at D-H by February 2006 are covered by the pension plan, according to D-H’s financial reports.

At the end of 2015, the pension plan had about 5,150 participants, including about 2,900 people still employed at D-H, according to the health system’s annual plan report filed with the U.S. Department of Labor.

As of June 30, the D-H plan had $845 million in assets but $1.1 billion in obligations, which left the financially strapped health system with a $224 million long-term liability on its balance sheet, according to its audited financial statement. D-H had $489.5 million in net assets.

D-H’s latest announcement characterized the change in termination dates as a step on “a path toward long-term sustainability for our retirement programs.”

A decade ago, D-H began excluding new hires from its traditional pension plan, and instead offered them a chance to participate in tax-advantaged retirement savings plans. Existing employees also were offered the opportunity to shift some or all of their retirement coverage to such defined-contribution plans from traditional pensions, which also are called defined-benefit plans.

Ellen Thompson, a retired D-H nurse, said that she stuck with the traditional pension plan.

“I didn’t want to give up a guarantee versus the open market,” she said, noting that that was the opinion of most of the people she knew.

“My understanding is that the pension is a kind of annuity,” Thompson said. Participation “guarantees you a certain amount” based on your pay level and tenure, she added: “Nobody wants to give up a pension.”

The transition away from traditional pensions into so-called defined contribution plans — such as 401(k) plans, where employees and retirees make investment decisions but take on the risks of losing money if those investments do poorly — is part of a national trend.

In March, about 47 percent of American employers offered some sort of retirement plans, according to a survey by the U.S. Labor Department. Including some employers who offered more than one type of plan, about 46 percent of employers offered defined contribution plans but only 8 percent offered traditional pensions, the survey found.

More than two-thirds of employees of establishments with at least 100 workers had some sort of retirement plan. Overall, about 54 percent of employees had a retirement plan, but only 23 percent were in traditional pension plans, according to the survey.

Defined contribution plans are attractive to corporations and other employers because they remove from their balance sheets obligations to pay pensions. Those obligations assume successful investment of pension assets — expected long-term returns in a range from 7.5 to 7.75 percent in the D-H plan. If those targets are missed, employers are on the hook to make up the difference, and that can reduce profits or margins.

During 2015, about 12,000 employees at D-H contributed $47.7 million to defined contribution plans, according to a report sent out to current and former employees. During its most recent fiscal year, D-H contributed about $30 million to such plans.

In October, D-H announced that a discretionary matching contribution it offers to encourage employee saving for retirement would be suspended in calendar 2015 due to a recent operating loss by the health system. Base contributions, ranging from 1 to 7 percent of employees’ pay, were not affected.

Dartmouth College, where all employees hired since 1997 have been enrolled in defined contribution plans and excluded from traditional defined benefit plans, contributed $26 million to defined contribution plans for its employees in fiscal 2016. The college’s pension obligation of $144 million is offset by assets of $142 million, leaving only a $2 million liability. The college pension plan projects a more modest 6.1 percent return on invested assets.

However, the college did end the fiscal year with a $352.9 million liability for medical insurance subsidies for retirees. Only employees hired before the end of the 2009 fiscal year are eligible for that benefit.

At D-H, the liability for retiree health benefits was $51.4 million at the end of June.

Rick Jurgens can be reached at rjurgens@vnews.com or 603-727-3229.