Wednesday, October 15, 2008

The Global Economic Crisis’ Implications for CHRISTUS Health and our Response

Because of the recent events in the global economy and the uneasiness it has caused at home, we recently provided our Associates with an update CHRISTUS Health and our ministry’s response to the global economic crisis.

The downturn in the equity markets last week has had, as we would expect, a negative impact on our portfolio. However, because of the diversification of our portfolio, the current crisis did not impact us as heavily as it did the equity markets. In the last few days, our portfolios lost 3 percent on average, while the Dow and Standard & Poor’s 500 lost approximately 9 percent each.

Obviously, for our Associates and CHRISTUS employed-physicians, the status of our retirement funds, including the Cash Balance Plan and the Matched Savings Plan, are extremely important. Since CHRISTUS Health was formed, the leadership team has made a conscious effort to ensure that the U.S. and Mexico retirement accounts are funded adequately to meet the projected needs of retirees not only for this year, but those projected to occur in future years based upon our individual ages and years of service. CHRISTUS Health has always used an external actuarial service to make the determination of what these payments in future years would be.

An actuarial is a company whose staff has the responsibility to look at the workforce, and based on its age and years of service, they determine the amount of retirement that will need to be paid out on a rolling 10-year basis. We then fund both retirement plans on a monthly basis according to the actuarial’s best estimates. Funding at the 100 percent level has been a primary goal of CHRISTUS Health. For the Cash Balance Plan, this is done through investment policies overseen by the Investment Subcommittee of the CHRISTUS Health Board of Directors. It is important to note that our Associates control the investment categories for their Matched Savings Plan.

It also should be reassuring to know that these funds are annually audited by an external auditing firm, and this report is reviewed and approved by the Audit Committee of the Board. Again, CHRISTUS Health has made an attempt to keep this retirement fund as close to 100 percent of the actuarial projections as possible and alters its monthly fund contributions in order to achieve this goal.

Obviously, with the volatility of the market, the Cash Balance Plan fund, along with the operating fund and the Emerald Assurance fund, have been affected somewhat negatively. But again, because of the diversity of our investment portfolio, the current market crisis has not as significantly affected CHRISTUS Health as it has other health systems and businesses. As the market is rebounding, it is hopeful that these losses will be partially or fully recovered quickly so as to maintain our goal of reaching 100 percent funding.

In addition, it is important to note that the retirement funds – both our Cash Balance Plan and Matched Savings Plan – are totally reserved and can never be used to support financial or operational challenges.

Because our Matched Savings Plan is an important benefit for all CHRISTUS Associates, our senior leadership team has supported our HR leaders to develop communications to encourage Associates, particularly those in the lower paid positions, to sign up for this program.

Overall, CHRISTUS Health now has nearly 30,000 Associates in our international ministry:
Full- and Part-Time Associates in the U.S. – 20,265
Per Diem Associates in the U.S. – 5,364
Mexico Associates – 3,600

In Mexico, the CHRISTUS Muguerza system is mandated by law to have a success sharing program with all their Associates. We have replicated that program on a smaller scale in the U.S. campuses, driven by patient satisfaction metrics.

In addition, in the U.S., 44.3 percent of the full- and part-time Associates contribute to the Matched Savings Plan along with 8.3 percent of the per diem Associates, resulting in an overall participation of 36.8 percent. This has grown from 8 percent over the last 10 years as CHRISTUS has continued on its Journey to Excellence.

As we review our 10-year history moving towards our 10th anniversary in February of 2009, we clearly see that CHRISTUS Health has faced many challenges. In response to these challenges, the CHRISTUS family has designed and implemented many changes which have resulted in significant progress in all of our Directions to Excellence. The market volatility we are experiencing in recent weeks is just one more challenge which we are currently addressing. We recognize that market volatility is normal and in reviewing history, we know that it must be expected periodically. To minimize the risk of this volatility both present and in the future, we rely both on our internal knowledge as well as external expertise, of our investment consultants, Investment Subcommittee, external auditors and bond rating agencies. This integrated program hopefully gives our Associates a greater sense of comfort as we travel through these challenging times.

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