Fidelity Abandons its Traditional Plan
According to its May 12, 2006 press release, Fidelity Investments expands its offering to deliver "defined benefit plan sponsors increased investment flexibility and greater access to and control of plan data to help them identify and mitigate financial and fiduciary risks."
In today's Investment News, reporter Kathie O'Donnell writes that Fidelity Investments will replace its traditional pension plan for over 30,000 participants and instead offer them a "retiree health reimbursement plan and a beefed up profit-sharing plan." O'Donnell adds that Fidelity's in-house studies suggest the need to address the health care gap, the company match will increase to 7% from 5% and profit-sharing contributions will continue.
For some reason, today's headline stood out, causing me to wonder. Might it make sense to ask pension advisors, consultants and money managers what plan(s) they offer to their employees and why?
One particularly troubling issue (from the retiree's perspective) is that an individual health reimbursement plan does not necessarily enjoy the same discounted rates as a major health plan.
A retiree might use the CPI to assess the adequacy of his retirement savings over time. But without access to such discounts, he might need to utilize a much higher inflation rate to assess his ability to cover his health care expenses over time.
Michael Kraten, PhD, CPA
www.enterpriseman.net
We've indeed seen that precise question asked in RFPs/RFIs from time to time.
Carl Hess
Watson Wyatt Investment Consulting