The challenge: Management of pre-retirement beneficiaries
A Milliman client sponsors a defined benefit pension plan that consists of over 60 benefit structures and has varying and complex pre-retirement beneficiary designation rules. The challenge of getting valid beneficiary elections and tracking them was overwhelming.
For one of the benefit structures applicable to a large group of participants, the plan rules only permit the payout of a non-spouse pre-retirement death benefit if a valid beneficiary election is on file. There are no default rules for single participants. Further complicating the issue is the fact that many participants have benefits across multiple structures, each having different beneficiary designation rules. In addition to the specifics mentioned above, the following are common issues that arose with the administration of beneficiary elections:
- Beneficiary elections not updated to reflect life events
- No election on file
- Expired beneficiary elections (i.e., participants filed an election prior to age 35)
- Incomplete or invalid elections on file
- Historical elections being lost
- Participant confusion over beneficiary designations for other non-pension benefits
Some participants died and lost their pension benefits. This was a major concern for our client due to the emotional and financial burden affecting the participants’ families. There were also multiple lawsuits resulting from lost benefits.
The solution: Implement a process to track and assist participant elections
One of the solutions was to amend the plan to default benefits to deceased participants’ estates, which helped for some of the client’s structures. Within other benefit structures, however, there are multiple unions where changes would have required complicated negotiations and potential additional liabilities to the plan that would not be a practicable solution at this time. Therefore, we needed a way to increase designated beneficiaries within the current provisions of the plan.
Knowing what data is available is half the battle. Going through historical folders for 10,000 participants was neither cost nor time efficient. Milliman compiled the electronic conversion data received from prior administrators and used newly created beneficiary tables within our administration system to get a better sense of how many participants did not have a valid election. Many data checks were needed as prior administrators had also allowed participants to make invalid beneficiary elections-- which could also result in participants losing benefits.
With this knowledge, Milliman created targeted paper mailings and email blasts to prompt the affected population to make valid elections. We initially focused on those most at risk, like disabled participants, because time can be more relevant in these cases. Although this was helping to increase the number of elections on file, more than 40% of the population still did not have any elections. The second half of the battle became obvious. The Milliman team had to find a way to make it easier for participants to get this information updated.
The industry standard is moving towards allowing this information to be updated online. The ERISA advisory council’s report, “Current Challenges and Best Practices Concerning Beneficiary Designations in Retirement and Life Insurance Plans,” has multiple references as to how administration is improved by allowing participants to designate their beneficiary online. Working with the programming team, Milliman developed an online beneficiary election wizard within the administration system for participants to use, so they could view and update their information within the online system. The wizard was built to deal with all the varying and complex plan and legislative rules related to designating pre-retirement pension beneficiaries.
The outcome: Happier client and participants
The online beneficiary election is easier and more convenient for participants to complete than traditional paper mailings. Having the information stored electronically keeps what is on file up to date and is viewable to the participant. It also allows the client to reach out proactively to participants more efficiently and effectively.
The client feels much more comfortable that the best effort is being made to elicit beneficiary designations and provide the best service to participants. Milliman was able to help increase the percentage of all participants who had valid beneficiary elections by 13% (from 44% to 57%) and by 32% (from 15% to 47%) for the most at-risk population. With the new web enhancements in place, both the client and the Milliman team expect even better utilization going forward as participants are notified of these new online features.