The windup of registered pension plans is complicated. Whether a partial or full windup is declared, the plan’s administrator and actuary work with the organization to outline and follow a process that meets the requirements set out by applicable pension standards legislation and supporting policies. This process includes a plan member communication strategy; however, more often than not, it only meets compliance requirements.
Even though a plan windup may be the result of corporate bankruptcy, investing in communication initiatives that go beyond the fundamentals to encompass plan member education may be well worthwhile. Not only will this enable plan members to make better, more informed decisions about their futures, it will go a long way in alleviating their stress at a difficult time. In addition, taking proactive measures to inform members of their options can keep costs down and possibly protect the company from unfavourable publicity.
Explain the Process
Most members won’t appreciate the steps required to wind up a pension plan, and some may not have a true understanding of the plan provisions affecting them. But plan sponsors should consider educating members on both counts—and as early as possible.
Some organizations supply materials upfront, along with the windup notice they are legally required to provide. Others set up live education sessions, hosting multiple sessions to accommodate a range of schedules, as well as dividing attendees into groups with similar demographics to provide more targeted information. While offering such sessions may sound like an unnecessary cost, group sessions provide the opportunity to address the concerns of a large number of members at the same time. Answering questions on an individual basis could well be more costly.
The windup process can be lengthy. Plan member communication should be used to set a timeline and manage expectations. If there is a delay in the process, proactive communication can alleviate concerns and keep any call-centre costs to a minimum.
Define the Options
Coincident with the plan windup, members may find themselves without a job. In these circumstances, they may not be in the best frame of mind to make decisions about what to do with their pensions (e.g., whether to take the commuted value). Members need to have a good understanding of their options and the ramifications of all.
Some recent trends drive home this point. In a number of partial plan windups, a significant portion of the members elected to take the commuted value of their pensions based on the advice of their financial advisors. With the economic downturn, many saw a marked decrease in the value of their funds, but they might have fared better if they had left their funds in the plan for an annuity to be purchased on their behalf. Some of those unhappy plan members claimed the advisors, and even the plan sponsor, should have done a better job of explaining the risks to them.
Make it Easy
All plan windups come with paperwork, so it is extremely important to design user-friendly statements and forms so plan members can complete the forms correctly. Following up on incomplete paperwork can add significant cost to the windup.
A company with a large plan windup should consider investing in a specialized call centre with staffers who understand the plan and process—and have windup experience. Call volumes will be high and questions complicated, so members need to receive accurate information and consistent messages as quickly as possible.
Plan sponsors should also consider other means of communication. Some members may be more comfortable asking questions and getting responses by email; others may prefer to access updates online. Web communication also means information is accessible around the clock.
Winding up a pension plan can be stressful for plan members and challenging for plan sponsors. However, ensuring that members are not just told about the process but are empowered through education to make informed decisions can go a long way to easing the concerns of both parties. BC
Kate MacDonald is a pension administration consultant in Hewitt Associates’ Toronto office. kate.macdonald@hewitt.com
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© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the September 2010 edition of BENEFITS CANADA magazine.