Defined benefit pension plan changes have received a lot of press in the past year. Ford and GM offered lump sum payments to retirees. Many sponsors froze their pension accruals or changed pension plan designs. And now, more plan sponsors are considering these and other changes.
Amy Terry, Director of Benefits Administration and Outsourcing at Tegrit Group, has helped many organizations to communicate pension plan changes.
“The costs involved in communicating change to participants can be significant,” she says. “Regardless of the size of the budget, sponsors who consider their options and develop an effective strategy can realize the best return on their investment.”
Smart Business spoke with Terry about pension change communication strategies.
When planning a communication strategy, where should plan sponsors begin?
A good plan often begins with the end in mind. Know what changes are being made to the plan, the purpose for those changes and what actions participants will be asked to take. Know your participants and how they have reacted to past communication efforts. Consider the communication channels available to decide if new or different channels should be used. And, as always, remember the budget available.
Complex changes or changes that require participant action may need a longer timeline from the initial rollout through the conclusion of the process. Plan to have regular communications throughout to keep participants informed of where everything stands and what is coming next. When plan sponsors don’t keep participants informed, rumors and misinformation can spread. When plan sponsors effectively manage the message throughout the process, they are more likely to realize the desired outcomes, maintain participants’ morale and keep the entire process moving on time and on budget.
Who should be informed first and why?
Begin by ensuring the organization’s leaders, HR and management are ready to assist in driving the message consistently. Having the buy-in of leaders is crucial.
Once the organizations’ leaders are in agreement with the changes and timing, both HR and management must be informed and prepared to talk with employees. Many employees will go to their HR contacts or managers for more information.
Then, share the change and the reasons for the change with participants early. Being clear and direct from the start will help ease participants through the transition and allow sponsors to reinforce the message throughout the process. Often, sponsors will keep the first communication brief, informing participants of the change and notifying them of next steps and timing for future communications.
How can you ensure participants take the necessary actions?
When requiring participants to take action, make it as easy as possible. For example:
- Do you want them to return a hardcopy document? Enclose a return envelope.
- Do you want them to log onto a website and respond electronically? Ensure participants all have the necessary login information and instructions in advance.
- Do your participants want to talk with someone? Open a call center to ensure your participants can reach someone to ask questions or discuss the changes.
When offered a choice, how can employers aid participants with their decision?
Not all sponsors are comfortable offering advice to participants. It is common to direct participants to consult with their own financial adviser or tax consultant when facing pension plan decisions. However, many organizations have buying power that allows them to make advisory services available to participants.
If your defined benefit pension plan change will offer participants a lump sum, then a rollover into a 401(k) or other qualified defined contribution plan is an option participants should consider. Most 401(k) providers offer advice for a fee. Contact your 401(k) provider to determine if it will offer free or discounted advice services during the decision period. Alternatively, sponsors may want to engage a reputable independent adviser to offer seminars and advice for a flat fee.
What communication method works best?
Plan sponsors have a variety of tools at their disposal; however, it often requires a combination of communication methods to ensure the message reaches all participants. Knowing your participant population and how it reacts to regular communications, like annual open enrollment for their health and welfare benefits, may offer clues to deploying communication resources that are effective for your organization and the change you are considering.
Email and face-to-face meetings may work best for current employees, whereas direct mail may be the best option available for terminated and retired participants. Posting information on the company website may be more effective and efficient for younger participants, particularly when follow-up action is required. Older participants may want to talk to someone live, requiring a call center.
Do employers need additional help?
There are many pension professionals who have experience with communicating change to employees. Your actuary or third-party administrator will know your pension plan and may be a great place to start.
By effectively managing the message, making it easy for participants to take action and consulting with participants where it’s appropriate, sponsors can help participants make the decisions best for them and their families.
Amy Terry is Director of Benefits Administration and Outsourcing at Tegrit Group. Reach her at (330) 983-0580 or email@example.com.
Insights Retirement Plan Services is brought to you by Tegrit Group