In today's business environment, employers continue to shift more and more of the responsibility for their benefits to employees. A few examples come to mind, including high-deductible health plans with health savings accounts (HSAs), wellness programs, and telemedicine. How employees save for retirement is certainly near or at the top of that list. Your decision to freeze or terminate your pension plan may not come as a big surprise to your participants. But that doesn't mean that they will understand what this decision really means for them or what they need to do to stay on track for a secure retirement.
A pension freeze or termination can lead to a lot of logistical and regulatory hurdles for both company management and the plan administrator—for example, in the case of a termination, improving the funded status of the plan, submitting government filings, and finding lost participants. The up-front data cleanup project for a termination alone may leave a chilly feeling in the air. Aside from what's required, consider how you can help your participants make this important transition.
1. Start early. As with most change management communication, begin communicating with your employees as soon as possible. You don t want them to find out what you re planning through watercooler gossip or the local newspaper.
2. Be direct. Help your participants understand the business reasons for the change. Remember that your active employees aren't the only ones who may need to warm up to the idea. Former employees with a vested benefit in the plan and former employees who are retired and already receiving a monthly check also need to be in the loop on what's happening.
3. Promote the good news. Let your employees know if there's still free money to be had. Now is a good time to remind employees about any matching or profit-sharing contributions that you make to your defined contribution (DC) plan. A pension plan was always intended to be only a piece of the retirement savings puzzle. With the pension plan going away, the rest of the retirement pieces take on greater importance.
With the shift in focus from a pension plan to a DC plan, you can also make employees aware that they re now in control of their retirements. They control how much they contribute; they control where the funds get invested. Employees will now be the arbiter of their own retirement destinies. Through research and use of the saving and investing tools that your plan offers, they can continue to be or become informed consumers.
Overall, this process might be complicated for you as a plan sponsor. However, employees may also feel confused and uncomfortable—even frozen just like the plan. Through effective communication, you can help them decide whether to save more in their DC plans, and in the case of terminations, whether to take a one-time lump-sum distribution or stick with the annuity. Guide them to a resource where they can receive sound financial advice. And help them to understand their options so they can avoid the potential taxation pitfalls related to these types of decisions.
Keep your employees informed before, during, and after the process. This open line of communication will help you maintain positive employee relations long after the project is done. After all, just because your plan is undergoing a freeze or termination doesn't mean you can t help everyone feel warm and fuzzy about their benefits.