Parsec Financial Discusses HCA Retirement Plans
June 21, 2019
As the dust begins to settle on the recent acquisition of Mission by HCA, we continue to field questions about the various changes to the health system’s employee benefits and retirement plans. The benefit changes are only a few of the countless moving pieces set in motion by the acquisition. Even so, the retirement plans, in particular, continue to generate enough interest and concern that the Western Carolina Medical Society (WCMS) membership might benefit from additional coverage of these changes.
The latest shift from a 403(b) to a 401(k) follows a multi-year project to streamline Mission’s retirement benefits programs after its expansion led to the simultaneous administration of more than a dozen different retirement plans across the various organizations within its footprint. Even after consolidating many of the retirement plans under its control, Mission continued to offer a multi-plan program that allowed physicians and other high-income employees to take advantage of tax code provisions that are only available for not-for-profit employers. Until its recent sale, Mission offered a 403(b) plan for nearly all employees, a “secondary” 457(b) plan for physicians and certain leadership, and a few “tertiary” 457(f) plans for certain individual executives and physician groups. This multi-plan structure permitted most physicians to save much more toward retirement than they could have with a single, standard plan.
Had Mission been acquired by another not-for-profit healthcare system, it is likely that a very similar multi-plan program would have been offered. Because each of Mission’s “old” plans could only be offered by not-for-profit employers, the acquisition by for-profit HCA meant that no new money could flow into the 403(b), 457(b), or 457(f) plans. The impact of the acquisition is different for each plan type, so we’ll attempt to summarize below the considerations and consequences faced by participants in each plan.
For those of you affected by these changes, we recognize that the Mission retirement plans may have represented the bulk of your retirement savings. We also realize that the changes might have a significant impact on your 2019 taxes. We encourage you to discuss your 2019 tax situation with your tax advisors and to discuss with your financial advisor the options for investing any remaining 403(b) assets and for redeploying any proceeds received from 457(b) or 457(f) plans in which you were a participant.
Mission Health System 403(b) Plan frozen, replaced by HCA Mission Health System 401(k) Plan
The primary plan for Mission Health System was a single 403(b) offered to nearly all employees. Once Mission was confident that the HCA deal would be completed, they began preparing a successor 401(k) plan that would mirror the existing 403(b) plan in order to minimize disruption to employees once the acquisition was finalized. While the deal was still pending, some WCMS members voiced concerns about the lack of information pertaining to the retirement plans. Mission had to comply with strict rules that governed the timing and the content of any announcements about the proposed change. The process was further complicated by the delays resulting from the attorney general’s review and by Mission’s obligation to keep many details of the acquisition confidential. In this case, some of the same rules that were intended to improve transparency for plan participants actually made it more difficult for Mission to share meaningful information until the effective date was near.
When the changes arrived, regulations also prohibited Mission from automatically combining the assets from the “old” 403(b) into the “new” 401(k) plan. Participants therefore must make their own decisions about how and where to invest the savings they accumulated under the “old” 403(b). The options include leaving the money in the 403(b) (at least for now), transferring the money into the new 401(k), or rolling the money out into an IRA. If you have not yet made a decision, you should carefully consider the advantages, costs, and drawbacks of each option.
457(b) plan terminated, accounts liquidated
This plan has been perhaps the greatest source of confusion among our Mission-affiliated members. The Mission 457(b) plan was a special type of non-qualified, deferred compensation (NQDC) plan that is common among non-profit healthcare systems. The contribution and investment features might look and feel like a typical retirement plan, but the plan follows a very different set of rules that require several distinct provisions. These 457(b) plans are not as portable as most other retirement plans: the assets are not eligible for rollover into a 401(k)/403(b) or into an IRA.
Perhaps the most important distinction is that assets in this type of 457(b) plan are subject to the claims of the company’s creditors. Since the credit risk profile of an acquirer could be very different from the risk of the original plan sponsor, many 457(b) plans include a provision that forces the plan to be liquidated in the event of a change in corporate control. This change-in-control trigger is designed to protect participants’ savings, but it also leads to the immediate distribution & taxation of the entire amount.
We’ve heard from several members who reported receiving conflicting information from Mission, from local advisors, or from their own online research. Some confusion is understandable. After all, there are certain types of 457(b) that are eligible for rollovers. Mission’s 457(b) plan, and the proceeds received from it, ARE NOT eligible for rollover and cannot be combined with other retirement assets.
457(f) plans terminated, accounts liquidated
Mission offered various deferred compensation arrangements to certain executives and physician groups. Each plan was typically referred to by its own name (the “Call-Pay Plan,” the “Capital Accumulation Plan,” the “LTIC Plan”), but each of the plans was organized under Code Section 457(f). Each plan had its own unique provisions that determined the eligible population, contribution amounts, vesting schedules, and distribution timelines. Some Mission employees were participants under more than one of these plans. In the case of the Call Pay Plan, some WCMS members were participants even though their practice was not affiliated with Mission except for a contract to provide call staff.
In these 457(f) plans, balances that might have been unvested before the acquisition generally became vested and distributed immediately. Perhaps because these plans often provided for an eventual lump-sum distribution upon retirement or separation from service, or perhaps because they were so drastically different from the 403(b) plan, their liquidation seems to have been less disruptive and less surprising for participants than the liquidation of the 457(b) account.
This article was prepared for WCMS with input from Parsec Financial, a local independent Registered Investment Advisor headquartered in Asheville, NC. They are employee-owned and community-focused, giving approximately 2% of firm revenues to charity annually. As a preferred vendor of WCMS, Parsec works with many of our members and their families to provide financial advice, manage investments, develop comprehensive financial plans, prepare tax returns, and administer trusts. WCMS members are eligible for a discount for Parsec services. You can reach a Parsec advisor at (828) 255-0271 or by email at firstname.lastname@example.org. You can also read more about their services on their website: www.parsecfinancial.com.
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