London Market Monitor – 31 August 2022
Our August review of the markets and Solvency II discount rates.
To reduce pension risk, many organizations offer eligible participants the opportunity to receive their pension benefit as a single lump sum and “cash out” their future benefit. This event is also called a “window.” The audience for a lump sum window varies and can include actives, terminated vested participants, retirees, and beneficiaries. During a lump sum window, an eligible vested participant can:
The U.S. government requires participants to be provided enough information to make a decision in their best interest. If participants respond and take advantage of the limited opportunity, successful cash-outs can reduce fees and future plan liabilities. That’s where engaging communications enter the picture. Statistics show the more you educate, communicate, and simplify—the higher take-up rate you can expect from participants. Generally, Milliman has seen that programs with effective communication campaigns can achieve response rates in the range of 50% to 60%.
This article provides proven components of successful lump sum window campaigns that result in a win/win for you and your participants.
Your main goal is to simplify the decision-making process. You also want to ensure that participants are not overwhelmed with their options. To accomplish these priorities, provide impartial communications that:
Offer support. Participants will not respond if they have unanswered questions. Look for easy-to-use ways to allow participants to ask questions and get answers, such as:
Then provide these service teams with materials, such as frequently asked questions (FAQs), communication samples, and training, to prepare them to answer questions and support the initiative.
Your lump sum communication plan needs to support the U.S. Government Accountability Office (GAO) recommendations regarding the key types of information participants should receive to understand a lump sum offer.
Answer common questions. Effective communications should answer the following questions:
The purpose of having a communication campaign is to simplify the message through multiple touchpoints. Don’t expect one mass mailing to do the job. Instead, announce the window, educate about the opportunity, and provide reminders about the deadline. Lastly, send postcards confirming receipt and acceptance of paperwork once participant elections are confirmed. Below is an outline of communication elements to keep the message front and center for participants.
Announcement postcard. Send this communication two to three weeks in advance of mailing the education election packet. The announcement postcard accomplishes two things:
|Announcement Postcard Sample
Build awareness and alert participants of the upcoming opportunity.
Reminder postcard. Send participants a reminder two weeks prior to the close of the window. Historically, take-up rates increase after sending this tickler.
|Reminder Postcard Sample
Reminds participants about the one-time opportunity and deadline.
Confirmation postcard. Put participants’ minds at ease by sending a postcard to confirm receipt and acceptance of their paperwork after elections are processed.
|Confirmation Postcard Sample
Informs participants that payments are on the way.
Include in one packet everything a participant needs to know and do:
Decision guide sample. Explains the lump sum versus annuity option and outlines considerations, including an example of how lump sum amounts can go up or down based on interest rates, rollover advantages, and FAQs.
Looking to increase the response rate? Go the extra mile; add these touchpoints:
A successful lump sum window is supported by a thoughtful, well-planned and executed communication strategy. Get your communication consultant involved from the beginning so they can gather information early to develop messages to help participants feel confident about their benefit decisions.