The former St. Clare’s Hospital located in Schenectady, NY, is facing scrutiny over the recent decision to terminate the pension plan earlier than originally anticipated. Over 1,000 beneficiaries were recently made aware of the decision, which has left them uncertain about their future benefits. As unfortunate as this issue is, it is important to understand what a defined benefit plan is; how it is different from a defined contribution plan, and what this type of issue means for the beneficiaries.
First and foremost, there are significant differences between a defined benefit plan and a defined contribution plan. St. Clare’s had a defined benefit plan in place, which is more commonly known as a pension plan. A defined benefit plan promises to pay a set amount, typically paid as an annuity over the participants life or the joint-life of the participant and their spouse. Defined contribution plans, such as a 401(k) plan, does not promise a certain benefit but instead pays whatever has been accumulated through employer contributions, employee salary deferrals and investment gains.
Furthermore, since St. Clare’s is a religiously affiliated hospital, they applied for the “church plan” exemption which means that the plan was exempt from ERISA and not required to purchase insurance through the Pension Benefit Guaranty Corporation (PBGC). Had St. Clare’s opted to be an ERISA sponsored plan, they would have been required to purchase insurance through the PBGC, which would have guaranteed at least part of the benefit for the beneficiaries.
DirectAdvisors ERISA Fiduciary Solutions
DirectAdvisors provides independent ERISA Fiduciary Investment Advisory Services and plan consulting services for 401(k) and 403(b) retirement plans. We were once third-party administrators; we use that experience to be the intermediary between you and your third-party service providers. 100% of our advisory and consulting practice revenue comes from retirement plan services. Unlike other practices that make retirement plan service a part of what they do, it is ALL that we do! And it’s what we have been doing here in Albany, New York, since 2001.
Think of us as the quarterback to your retirement plan. We help you to manage all of the pieces so you don’t have to. Retirement plans (401(k), 403(b), Defined Benefit Cash Balance) have lots of moving parts: plan documents, custodians, recordkeepers, third-party administrators, investment decisions, employee counseling, etc. As experts with decades of experience, we will save you time and money and make the right choices the first time.