Currently “rife with
complexity,” defined contribution (DC) plans at health care organizations could
learn a thing or two about governance from corporate plans, according to NEPC.
In a survey of health care and
corporate plan sponsors, the consultant found that health organizations have more
plans, larger investment committees, and slower decision-making processes than
the average corporation.
“The sheer size and complexity
of the DC program may feel like it requires a Herculean effort to manage,”
wrote NEPC’s Ross Bremen and Timothy Fitzgerald.
Like corporate plans, health
care organizations have largely transitioned from defined benefit (DB) to DC,
with just 21% still offering an open DB plan. Unlike corporate plans, health
care funds often have multiple DC plans, including 403(b), 401(a), and 401(k)
These multiple plans result
from mergers and acquisitions in the health care sector, where health system
choose to keep existing plans separate instead of consolidating them due to
regulatory and other considerations.
The result is that the average
corporation surveyed had just one DC plan, while the average health care
organization had three. Yet despite the higher workload, NEPC found that health
care organizations had roughly the same number of investment staff as corporate
Investment committee size,
meanwhile, differed significantly, with health care organizations more likely
to have large committees with 7 members or more. The larger numbers, combined with a greater
tendency to use a consensus-driven decision-making model, resulted slower decision-making,
According to the survey, nearly
30% of health care plans cited timeliness in decision making as the biggest
challenge for their investment committees, compared to just over 10% of
“While size may have other
benefits, timeliness in decision making is not one of them,” Bremen and
Though the NEPC consultants
praised health care organizations for “effectively adapting” and “managing
significantly greater complexity than their corporate peers,” they said there
is certainly room for improvement on governance structures.
“There may be some learnings
from what many corporate plans have adopted,” they concluded.
Expertise Lacking at Health Care Funds