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H E A L T H W E A L T H C A R E E R
T O P H E A L T H S Y S T E M I N V E S T M E N TI S S U E S I N 2 0 1 6
P U T T I N G I T A L L T O G E T H E R
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T O D A Y ’ S S P E A K E R S
Michael Ancell, CFAHealthcare InvestmentsNational Segment Leader
Lori Wright, CEBSSenior Consultant,DC and Financial Wellness
Stefan Gaertner, PhDSenior ConsultantWorkforce Strategy
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P U L L I N G I T A L L T O G E T H E R
E N T E R P R I S E - W I D EI N V E S T M E N T A N D
F I N A N C I A LS T R A T E G Y
1
R E T I R E M E N TP L A N
R E V I E W
R E T I R E M E N T P L A ND E S I G N W I T H
P E O P L E S T R A T E G Y
SUCCESS
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A S S E S S I N G A S S E T P O O L SA N D / O R L I A B I L I T I E SI N D E P E N D E N T L Y C A N C R E A T ES U B O P T I M A L R E S U L T S
• Long-term Capital Pool (LTCP)• Endowment(s)• Defined Benefit plan(s)• Defined Contribution plan(s)• Foundation(s)• Captive Insurance Sub(s)
Enterprise-wideinvestment andfinancial strategy
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SOLUTION CONSIDERATIONS•Contribute from LTCP (or borrow) to the DB planto eliminate PBGC variable rate premiums
•Optimizes enterprise value -- equivalent to anadditional 4.4% return on contributions andstabilizes earnings
•Will reduce DCOH or increase debt, but improvecash flow
•May need to educate lenders
S T R A T E G I E S F O R O P T I M I Z I N G F I N A N C I A LO U T C O M E S
• The cost of maintaining pension plans is rising dramatically• PBGC premiums rising to 4.4% of deficit plus $80 per participant• Effectively an annual “Tax” on the deficit and additional participants
Enterprise-wideinvestment andfinancial strategy
Long termpool (LTP)
DB planassets
DB planliabilities
Investmentstress
Limit belowwhich covenantsimpacted
CurrentDCOH
StressedDCOH
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S T R A T E G I E S F O R M A N A G I N G I N T E R E S T R A T ER I S K
Enterprise-wideinvestment andfinancial strategy
• Quantify interest rate risk• Evaluate enterprise-level interest rate risk
SOLUTION CONSIDERATIONS•Examine combined interest rate exposure at theenterprise level– including LTCP, pensionliabilities, and debt -- rather than in isolation
•Combined view can create greater cash flowcertainty, stronger balance sheet, more robustearnings stream
•Rising rates may adversely impact LTCP andservicing cost of floating rate debt, but pensionplan’s funded status improves
Long term pool DB plan deficit
Both decreaseunder risingrates scenario
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P L A N N I N G F O R C O N S O L I D A T I O N
Effectively use benefits andrewards to drive productivity,
budget, profits
Consider OutcomesBefore Design
Use qualitative and quantitativedata to make better benefits and
rewards decisions
Draw onMultiple Perspectives
Reward elements areinterdependent
Think Holistically
Benefits
Career Work/life
PayMoney Attraction Retention
Engagement Results
Employer EmployeeCost External
Retirement PlanReview
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H E A L T H C A R E C O N S I D E R A T I O N S
Consolidation FAQs:
• Why can’t we just merge all the plans?
• Why can’t we just terminate the plans andstart over with a new plan?
• What are the biggest challenges to benefitalignment within the healthcare landscape?
• What are the biggest benefits to alignment?
Retirement PlanReview
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H E A L T H C A R E S Y S T E M P O S T - M E R G E RO P P O R T U N I T I E S F O R C O N S O L I D A T I O N
403(b)
Affiliate 1Private not-for-profit
Non-electivecontribution
Affiliate 2Private not-for-profit
Match
Affiliate 3Private not-for-profit
Service-based matchand service-based
non-elective
401(a)
Affiliate 4Governmental
Match
Affiliate 5Governmental
Age-based non-elective and match
Lead EmployerGovernmentalNon-elective
457(b)
Affiliate 4GovernmentalFeferrals only
Affiliate 5GovernmentalDeferrals only
Lead EmployerGovernmentalDeferrals only
Pension
Lead EmployerGovernmental
Final average payOpen to newemployees
Affiliate 4Governmental
Final average payClosed to new
employees
• Sample health care system expanded through a variety of methods – acquisition,merger, management contracts, joint ventures
• Resulted in 6 organizations, 10+ retirement plans, multiple vendors and investmentlineups
• Goal to harmonize retirement plan benefits where possible to increase efficiencies
Retirement PlanReview
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H E A L T H C A R E S Y S T E M P O S T - M E R G E RR E S U L T S O F C O N S O L I D A T I O N
403(b)
Affiliate 1Affiliate 2Affiliate 3
Alignment ofvendors would
provide maximumadministrative
efficiencyAlignment ofbenefit types,
levels and vestingpossible
401(a)
Affiliate 4Affiliate 5
Alignment of vendorswould provide
maximumadministrative
efficiencyAlignment of benefit
types, levels andvesting possible
LeadEmployer
457(b)
Affiliate 4Affiliate 5
Alignment of vendorswould provide maximumadministrative efficiency
LeadEmployer
Pension
Lead Employer
Affiliate 4
• Plans within each type merge, but retain separate benefit structures and featureswhere necessary
• Provides administrative efficiencies (combined plan documents, plan forms, singleForm 5500 filing for non-governmental plans, single vendor, streamlined investmentopportunity)
• Assumes no compliance obstacles to mergers and non-governmental plans mustpass non-discrimination testing
Retirement PlanReview
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Effectively use benefits andrewards to drive productivity,
budget, profits
Consider OutcomesBefore Design
Use qualitative and quantitativedata to make better benefits and
rewards decisions
Draw onMultiple Perspectives
M E R C E R ’ S D C P L A N A P P R O A C HI N T E G R A T E W I T H P E O P L E S T R A T E G Y
Reward elements areinterdependent
Think Holistically
Benefits
Career Work/life
PayMoney Attraction Retention
Engagement Results
Employer EmployeeCost External
Retirement PlanDesign with PeopleStrategy
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P E O P L E S T R A T E G Y M U S T R E I N F O R C EB U S I N E S S A N D H E A L T H C A R E S T R A T E G Y
Prioritized choices aboutpeople investments whichenable the organization to
achieve its businessstrategy and performance
goals.
People Strategy
Defines the organization’sperformance goals; setsparameters for decisions
and investments tosupport those goals.
Business Strategy
Describes the market forhealthcare services in the
context of populationhealth, technology,
treatments, complianceand reimbursement.
Healthcare Strategy
Retirement PlanDesign with PeopleStrategy
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W O R K F O R C E I M P A C T O N C R I T I C A LO U T C O M E S
Anecdotes
Reactivechecks
Simulationsand fore-casting
Correlations
Benchmarks
On-goingreports
Causation
Data
Information
Insights
Predictions
Stories
Human Capital Analytics Maturity Curve
MostPowerfulMercer
operateshere
Retirement PlanDesign with PeopleStrategy
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I M P R O V I N G A L O W P E R F O R M I N G F A C I L I T Y( L O W E S T 1 0 % ) T O A M E D I A N F A C I L I T Y
Masked clientresults
Retirement PlanDesign with PeopleStrategy
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B E Y O N D P A T I E N T S A T I S F A C T I O N
Estimated changes in financial performance andimprovements in quality of patient care
Increase number of registered nurseemployees
Increase hours worked by agency nurses
– IMPACT +
Increase number of licensed practical nurseemployees
Increase employee tenure
Increase ratio of executives to totalemployees
Quality of patient careFinancial performance
Retirement PlanDesign with PeopleStrategy
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P U L L I N G I T A L L T O G E T H E R
E N T E R P R I S E - W I D EI N V E S T M E N T A N D
F I N A N C I A LS T R A T E G Y
1R E T I R E M E N T
P L A NR E V I E W
R E T I R E M E N T P L A ND E S I G N W I T H
P E O P L E S T R A T E G Y
SUCCESSSUCCESS
• Set investment/financial strategy holistically• Rationalize/update retirement plans• Integrate retirement plan design with people strategy
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Q U E S T I O N S ?
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Lori Wright, CEBSSenior Consultant,DC and Financial Wellness
Stefan Gaertner, PhDSenior ConsultantWorkforce Strategy
Michael Ancell, CFAHealthcare InvestmentsNational Segment Leader
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