Case study: Communicating the transition to a Milliman Sustainable Income Plan (SIP)

The 1970s and early 2000s were both decades of market instability and economic downturn. While defined benefit plans emerged from the 1970s relatively unscathed, many today have still not recovered financially from the 2008 market crash. This is due to a variety of factors, including that pension plans’ active participant population in the 1970s was comparatively larger than the retiree population as many pension plans were relatively new. Because those same plans now have two generations of retirees in addition to the active workforce, they have become much more susceptible to funding problems. It is hard to improve plan funding when the ratio of active workers to retired participants continues to decline. Defined benefit plan sponsors are seeking alternatives to keep their plans fully funded while maintaining a desirable retirement program.

Case

The trustees of a multiemployer defined benefit plan were searching for a plan alternative that continued to provide lifetime income to retirees while ensuring the plan stayed fully funded so as to not burden employers with funding volatility. They came to Milliman for assistance and ultimately decided to move the plan to a Milliman Sustainable Income Plan™ (SIP). The SIP is a modification of an old plan design that stays funded by adjusting liabilities to match assets so benefits change annually, going both up and down with market returns. But the SIP provides an innovation to that old design. It prevents benefit decreases with a “cap and shore” strategy. A cap is in place that limits benefit increases in very good return years, holding those assets in reserve to shore up retiree benefits when they would otherwise go down in poor return years. This change requires a shift in thinking from how most current defined benefit plans work.

Communicating the SIP plan change

The trustees needed assistance conveying this significant plan change to their participants, so the Milliman employee communication team in Seattle helped execute a communication campaign that explained the basic principles of a SIP and how it differs from the prior plan. The communication campaign included:

• Explanatory video
• Four-page announcement mailer
• Letter to employers
• 12-page booklet
• Personalized statements

Phase 1: Announcement

The first phase of the communication campaign announced that a plan change was coming soon. The employee communication team created an explanatory video that was shown at leadership meetings and then posted online. The video provided a high level explanation of the plan transition to a SIP, why it was necessary, and how the new and old benefits would work together. The video laid the groundwork for future communication pieces, and it allowed the union leadership to get on board and become early advocates of the plan change.

A four-page announcement newsletter was mailed to participants’ homes following the video release, reiterating the main points of the video. It appealed to this plan’s participant demographic by using real-life examples and making references to times they would remember. It also incorporated graphics and charts to explain the basic principles of the SIP. Because the announcement mailer was sent home, participants and their families were more likely to read it.

Next, the communication team drafted letters to employers and participants who were not directly affected by the plan change. The letter contained the announcement mailer and a high level explanation of the plan change to assuage any rumors or fears they might have.

Phase 2: Education

Now that participants had some background information, it was possible to provide comprehensive information about the plan change so participants could fully understand what was going to happen to their benefits going forward. The employee communication team created a detailed 12-page booklet that included how the new benefit was calculated. The booklet used examples with specific dates and numbers to explain the SIP in plain language. These examples made it clear to participants how the plan change would directly affect their retirement benefits.

The detailed booklet also included a personalized statement for each participant that was designed to illustrate each individual’s unique situation. The statements showed the value of the participant’s current benefit and projected a value of his or her total benefit (the frozen defined benefit plan plus the SIP) at retirement under different investment return scenarios. This was meant to alleviate participant fears and demonstrate why the SIP was a positive change overall.

Results

The employee communication team reached out to the client’s human resources department to get feedback about participant response to the campaign rollout. The client reported that participants really liked the announcement and 12-page booklet with personalized statements. The human resources department also noted the distinct absence of phone calls regarding the plan change and was surprised at the ease with which participants accepted the plan. This lack of response is significant because the SIP altered retirement benefits, a topic about which people are often protective.

In addition, the client reported that participants enjoyed the video explanation because it made the plan change easy to understand. The video was presented to participants at union meetings, which led to impromptu question and answer sessions. The trustees were transparent about the plan change from the beginning. They noted that while many participants would benefit from the SIP, others would be better off under the old plan, and participants appreciated this honesty.

Overall, the client believed the campaign rollout was executed efficiently and could not provide specifics about what could have been improved. The communication campaign was successful because participants demonstrated their understanding and acceptance of a significant and complicated plan change to their retirement benefits. This achievement can be attributed to the various media sources that reached all affected participants as well as the personalized touch that clearly showed how each participant would be affected by the transition to the SIP.