Intermountain Health freezes pension plans. What does it mean for employees?

Utah-based Intermountain Health announced last week that it plans to bring its long-running pension program to an end. The move puts the health care services giant into a group that includes an overwhelming majority of U.S. companies that have phased out pensions over the past few decades in favor of contribution-based retirement plans.

The company cited “ongoing financial pressures, including lower government payments, inflation, and major market volatility” as factors behind the decision by Intermountain Health’s Board of Trustees to freeze the plan.

“The decision comes after careful evaluation and supports both Intermountain’s long-term stability and the retirement security for current and past caregivers,” the announcement on its website reads.

In an email interview, Intermountain told the Deseret News its pension plan is as old as the company itself, launching in 1975. Beginning in the early 1990s, the health care services provider started offering both a 401(k) plan and a pension plan but the pension option closed to new employees in 2020 and currently only a third of the company’s 68,000 employees in six western states are eligible for pension benefits.

What one doctor says

An Intermountain physician, who asked not to be identified, told the Deseret News that none of the pension-eligible employees, which include administrators, are really happy about the decision but are at a loss as to what to do about it.

The doctor noted that tens of thousands of employees are impacted by the change and those workers stand to lose hundreds of thousands of dollars in future earnings. The physician also highlighted that pension benefits were “heavily advertised and promised” as part of Intermountain’s previous recruitment efforts.

Intermountain officials said the entirety of pension benefits earned by eligible employees up to the end of the year will be protected and those funds will earn interest until payout.

“The pension benefit employees have earned up to the freeze date (December 31, 2026) will be preserved. This means the benefit — or money — they’ve already earned will not be lost,” Intermountain wrote in response to a Deseret News inquiry. “Those earned pension benefits remain legally protected, backed by federal law under (the Employee Retirement Income Security Act of 1974), and held in a trust that prevents the money from being touched or redirected for anything other than payment of future pension benefits to caregivers.

“Employees’ pension will remain part of their total retirement benefit and will be paid to them when they leave Intermountain Health or when they are eligible to retire, based on the plan rules.”

Intermountain says the vast majority, about 97%, of U.S. health care organizations only offer 401(k) retirement plans and the decision to freeze their own pension offering was the result of “a long and careful review of all options to ensure we are making the best possible choice for caregivers and the organization’s future.”

What’s behind the demise of the pension?

Pension plans were once a cornerstone of the American career journey, promising loyal, long-term workers a secure retirement through company-funded savings paid out as monthly checks.

But starting in the 1980s, U.S. companies began phasing out pension programs, also known as defined benefit plans, as a cost-saving measure. The paradigm shift was eased by the freshly created 401(k) plan, a provision of the Revenue Act of 1978, that created a new pathway for employees to invest a portion of their compensation before taxes are assessed.

David McEntire, senior financial planner for Deseret Mutual Benefit Administrators, said the primary differences between defined benefit programs, like pension plans, versus defined contribution plans, like a 401(k), are a transfer of both risk and the majority of the costs from employer to employee.

“In a defined benefit plan, the employer makes all of the contributions and they take on all of the investment risk with the expectation that (the employee) has a guaranteed payout when they reach retirement,” McEntire said in a Deseret News interview.

“In a defined contribution plan, the majority of the contribution is coming from the participant or employee with some matching contributions, in some cases, from the employer. And in the defined contribution, the employee is taking on all of the investment risk.”

Intermountain declined to share how much money it would save as a result of freezing the pension program but offered some insight into how those funds would be redeployed.

“Some of these funds will be redirected to alternative employee benefits, including adding the new 2% automatic retirement contribution to the 401(k), and offering the new Retiree Medical Savings Account for caregivers who previously participated in the pension plan,” the company said. “Remaining funds will be used to help care for our patients.”

McEntire noted that, unlike company pensions, defined contribution retirement plans like a 401(k) are portable, meaning they follow the contributor in the event of a job change.

McEntire also underscored the importance of seeking out professional financial consultation for those facing an unexpected change in retirement plans.

Intermountain noted that its 401(k) program offers employee contribution matching up to 4% and is offering support services to those who will be migrating from the pension plan. Those services, according to the company, will include a series of financial planning webinars; opportunities for one-on-one retirement consultations; access to a tool that will help employees calculate benefits following the pension freeze; and other financial and personal well-being services.

Intermountain Health, a nonprofit organization, operates 33 hospitals and over 400 clinics in Utah, Idaho, Nevada, Colorado, Montana and Wyoming.