Questions & Answers

These changes do not affect the basic vested and accrued benefits, such as monthly distributions from the Pension Fund according to the terms of the Pension Plan. None of these actions affect the Defined Contribution Plans sponsored by Erlanger and available to all eligible employees

On June 30, 2020, the Pension Fund is approximately 36% funded (or, said another way, it is $83.5 million underfunded). On June 30, 2020, the Pension Fund balance is approximately $46.7 million. According to current accepted actuarial principles, actuaries recommend that a pension fund strive to be funded at a level of at least 80% to meet its long-term financial obligations to all of the participants and their beneficiaries.

After a comprehensive review, the Board voted to adopt a series of changes reducing the unfunded liability by approximately $9.7 million. The Board further voted to adopt an amendment to the Pension Fund to temporarily suspend the optional lump sum payouts until the Pension Fund is funded to an appropriate level based on accepted actuarial principles. These actions are intended to help strengthen the Fund to a healthier and more sustainable financial condition.

The changes voted on by the Board on September 24, 2020 became effective immediately.

These changes affect only 1,300 current employees who were hired on or before June 30, 2009 and 1,400 former employees who are vested

According to current accepted actuarial principles, actuaries recommend that a pension fund be funded at a level of at least 80% in order to meet its long-term financial obligations to all participants and their beneficiaries. Keeping in mind that the changes are intended to help preserve and maintain the long-term fiscal health and stability of the Pension Fund as a whole, the Board expects the lump sum payouts to be reinstated when the Pension Fund is funded to an appropriate level according to accepted actuarial principles.

Participants can call 1-877-778-2100 or visit www.erlangerpension.org

The changes voted on by the Board do not impact current retirees receiving monthly payments.

These changes are the Board’s most recent efforts to continue to help strengthen the Fund to a healthier and more sustainable financial condition. The Fund needed immediate attention before it reached a point of compromising the availability of benefits for all participants and their beneficiaries.

The analysis revealed the single most significant factor in the financial health of the Fund is the difference between the expected investment return and the actuarially equivalent interest rate used to determine the optional lump sum form of benefit. The Fund, as structured, does not permit a change in the actuarially equivalent interest rate. It is this difference, and the resulting drain on Fund assets that has prompted the change, not Erlanger’s financial condition or the recent pandemic.

The option in the Pension Fund to take lump sum payments is based on assumptions set out in the Plan that cannot be changed. In other words, the Pension Fund establishes the interest rate and mortality tables used to calculate the optional lump sum payment amounts. The market based interest rate using the 15 year treasury used to calculate optional lump sums has been declining, along with other interest rates, for years and currently the interest rate used to calculate optional lump sums (15-year treasury note) is 1%. The very low interest rate coupled with low returns in the investment markets, have been major factors in the accelerated decline of the funding of the Pension Fund.

If something was not done immediately, the Pension Fund would not be able to provide all of the participants the pension benefits that the Pension Plan intends they receive.

The analysis also found that the projected earnings from the investments could not restore the Pension Fund to a healthy and financially sustainable condition. The Pension Fund also cannot expect to invest its way out of this current situation due to the realities of the investment markets.

The Board has voted to increase contributions above the Actuarially Determined Contribution amounts for FY 2020 by $2.1 million and the budgeted contributions for FY 2021 will be higher than FY 2020 contributions by $1,675.000. Without these most recent changes voted on by the Board, the optional lump sum payments and monthly benefit payments are projected under actuarial models to exceed these higher contributions by $8.7 million during FY 2021.

These decisions were based on the financial condition and current optional lump sum payment structure of the Pension Fund. In fact, Erlanger increased contributions above the State law required amounts for FY 2020 by $2.1 million, and the budgeted contributions for FY 2021 will be higher than FY 2020 contributions by $1,675.000.

No. This decision is related the financial health of the Fund alone. These decisions by the Board are not related to the pandemic or its possible impact on the hospital’s finances.

No. These changes are the most recent efforts that began approximately six months ago to help maintain and preserve the fiscal integrity and long-term financial stability of the Pension Fund as a whole, according to accepted actuarial principles.

Board members Jim Coleman, Jr. and Ken Conner led the comprehensive review process that resulted in the recommended strengthening strategy presented to the Board on September 24. The process involved research and analysis by experts, including:

• Actuarial computations and analysis (Prudential Financial)
• Legal review (Baker Donelson)
• Investment history and analysis (Gerber Taylor)
• Guidance and counsel (Erlanger Human Resources)
• Oversight and recommendations (Board members with an understanding of the issues)

Yes. Working to maintain the financial health and stability of the Pension Fund as a whole for the benefit of all participants and their beneficiaries is a basic component of the Board’s fiduciary responsibility. These decisions were made after a careful, deliberate analysis of multiple factors and options. The Board recognizes these decisions impact the lives of over 1,300 people but, for the long-term good of everyone who participates in the Fund , these decisions are reasonable and necessary.

Yes. Many options and combinations of options were studied, including terminating the Pension Fund or doing nothing at all. Keeping in mind that something needed to be done immediately, this strategy to help strengthen the Pension Fund in the short term for benefit of the long term was considered the best opportunity to secure the long-term financial stability and viability of the Pension Fund as a whole.