Modeling the pandemic risk
How to model the COVID-19 pandemic and forge a path to better risk insurance.
Within the first year of outsourcing their defined benefit (DB) administration work to Milliman, a small church plan client announced that they intended to terminate their pension plan. This particular plan was co-sponsored by two hospitals in different locations. The plan had already closed new entrants to the plan, and later froze the traditional plan and ceased employee contributions and pay credits to the cash balance component. When the hospital location with greater participant count started making plans to merge with a larger hospital system, it was only a matter of time before the idea of terminating this slowly shrinking plan came to the table. As Milliman began to provide fully outsourced administration services for this plan, we uncovered many historical data issues for deceased participants.
Unlike private corporate defined benefit plan benefits, the Pension Benefit Guaranty Corporation (PBGC) does not insure church plan benefits. With the absence of relying on the PBGC to take over missing participants in the church plan world, it became apparent that we had our work cut out for us. We needed to make sure that we reviewed all the death benefits thoroughly to ensure that all benefits were settled. This meant reviewing any missed payments, ensuring that all death benefits were paid out, and identifying beneficiaries before the end of the project. While this case study focuses on death processing for plan terminations, many other data issues can arise in a plan termination. Additional guidance is available here on the Milliman site to help plan sponsors navigate this sticky process.
Historically, both hospital locations administered plan benefits in a co-sourcing relationship using a third party administration system. One of the vendors they had worked with in the past for many years was acquired by a competitor. This resulted in limited access to the vendor’s recordkeeping system and prohibited any system enhancements. This would ultimately lead to many system defects, limited capacity of data storage, and a lack of assistance with the data handling in the system. This purchase forced the client into a rushed conversion to full outsourcing to a new vendor. After only being onboard for a handful of years as a fully outsourced client with this new vendor, the client was advised of organizational changes for the vendor that would prevent them from staying onboard as a DB only client.
At this point, the client reached out to Milliman for assistance with their situation and Milliman offered a solution. We worked with the client to complete a conversion to our platform as a fully outsourced client. With the back and forth and rushed forced conversions and onboarding in their past, we were faced with data holes and inconsistencies caused by many ongoing administration changes. We were aware of the importance of paying special attention to the death benefit processing that transpired in the past.
We wanted to make sure that we had a full picture of all deaths in the data. With the hectic past transitions, we knew we would be facing data inconsistencies and possible disruptions in the ongoing administration for death processing. It was important for us to find a way to successfully document all of the review that we were performing for deaths to make it transparent for the client and us. The following is an outline of the plan to tackle death review in preparation for the upcoming plan termination:
Ultimately, we were able to get to a point where we felt confident with the death processing for the client. When it was time to pass the baton to the annuity provider, the client also felt a level of comfort that we had done our due diligence to make sure that the death data was researched thoroughly and all beneficiaries were accounted. Even if you are working on a plan that has fairly clean data and deaths are being processed and kept up with regularly, it is always a good idea to do a full death reconciliation. You never want to be in a predicament of having someone come out of the woodwork after the fact when the plan termination is completed. Being able to back into every death case and have documentation of the research that was done can help, especially when it comes to the point of signing off on all the filings and forms. It will also give everyone on the project, including your client, a sense of assurance.