Little Rock-based Baptist Health, which owns seven hospitals in Arkansas, has offered 4,500 former employees the choice to take a lump-sum distribution from their defined benefit pension plan or to continue to receive fixed monthly payments.
A defined benefit retirement plan is one sponsored by the employer in which the employee's benefits are determined on the basis of salary and length of employment. A defined benefit plan typically is paid in a fixed amount each month after retirement.
The employees were given seven weeks to make a decision, said Tony Kendall, Baptist Health's vice president of human resources. The time expires Monday.
Many other companies are offering the same choice, Kendall said.
The decision is voluntary, he said.
"We think this is a beneficial option for our former employees," Kendall said. "They may find that receiving a lump sum is a better outcome for them as opposed to getting a monthly retirement benefit now or in the future."
At the end of 2008, Baptist Health froze its defined benefit plan and began a defined contribution plan for its employees, Kendall said. A 401(k) plan is a defined contribution retirement plan.
Baptist Health has about 7,600 employees.
"Our goal has been to move completely away from the defined benefit plan, over time, to a defined contribution plan," Kendall said. "A defined benefit plan is a significant liability on any employer's balance sheet. From our long-term strategy standpoint, we want to get completely transitioned over to the defined contribution plan."
The frozen defined benefit plan, which was started more than 40 years ago, is fully funded and Baptist is financially able to address any liabilities in the plan, Kendall said. Mark Lowman, a spokesman for Baptist Health, declined to say how much money is in the retirement plan.
The lump-sum option can be beneficial for former Baptist employees, said John Ostner, a financial adviser with Retirement Advisors of Arkansas in Little Rock. Ostner's firm was one of several that ran newspaper advertisements in recent weeks offering to assist former Baptist employees in making their decision.
"The good thing about a pension, you have fixed payments for a person's lifetime," Ostner said. And if the employee chooses to take a lesser amount in monthly payments when they retire, then when the former employee dies, the surviving spouse receives about half the monthly benefits, Ostner said.
"The danger is if the employee takes the payment, they may want to use it like a checking account, which is disastrous," Ostner said. "But if the lump-sum distribution is properly managed and the markets are stable, then generally speaking that person can receive the same or more income. And if they die prematurely, whatever remains then can be paid to their spouse, instead of just half of it."
A good way to invest the funds is in a wide variety of 10 to 12 mutual funds, Ostner said.
Business on 10/23/2014