Pension plan sponsors that have opted to take advantage of provincial or federal funding relief measures face strict disclosure requirements. For many organizations, complying with these requirements means holding their nose and having their actuary prepare the briefest-possible member notification. But sending members a cryptic, official-looking document loaded down with actuarial terminology is counter-productive at best, and may actually do more harm than good (especially if the funding relief requires member consent).
The flawed thinking behind the less-is-more approach usually goes something like this:
• Given the plan’s financial pressures, we’ll do what we have to do to satisfy the letter of the law, but nothing more.
• The less members understand the better. Besides, trying to explain something as complex as solvency funding relief would be a complete waste of time.
The problem is that in the current pension environment, there’s nothing quite like the arrival of a cryptic, official-looking document to raise a red flag among plan members. After all, members are only human, and it’s human nature to fear or reject what we don’t understand, especially if it threatens our financial well-being.
It’s not enough simply to disclose what’s going on. Members need to understand it, or better yet, buy into the application of the funding relief measures as a necessary step to protect their pension. If they don’t, here’s what you’re likely to hear:
I don’t get it . . .
I don’t buy it . . .
Who can I blame?
A better strategy
Pensions are a hot topic these days, and your members are more interested and more easily engaged on the subject of their pension than ever before. In fact, they’re eager for information about the security of their pension. If ever the time was ripe to make the move from disclosure to communication, this is it.
Here are five steps you can take to help your members understand the need for solvency relief—and promote confidence in your decision to exercise your funding relief options:
1. Tell them why.
Tell members how you ended up with the shortfall. If members sense that you are being open and honest with them—and that you’re on top of the situation—they’re more likely to support your solvency relief strategy and will feel better about the future.
2. Make it clear that your plan is not alone.
Members are more likely to accept news of a solvency deficiency if they know that most other pension plans in Canada are in the same boat. Cite statistics about current funding ratios—and put your plan’s financial position in context.
3. Don’t underestimate them.
There’s nothing like a funding shortfall to motivate your members to understand plan finances. Make it easier for them by presenting the information in a user-friendly format. Take the time to explain the difference between a going concern shortfall and a solvency shortfall in plain language. Members will appreciate the effort.
4. Be upfront with them.
Plan sponsors often worry that they’ll create unnecessary anxiety if they tell plan members what could happen to their pensions if the company (or pension fund) went up in smoke. But left to their own imaginations, members are likely to conjure up an even worse scenario. They have a right to know what’s going on. Hiding information will only damage your credibility and create mistrust.
5. Start at the top.
Make sure your leadership gets advance copies of your communication material. Better yet, get their input into your communication strategy. This will help you to bring them onside and equip them to deal with member questions.
Coming clean about your plan’s funding issues isn’t fun. It requires an investment of time and, likely, money. Moreover, it’s not a one-off event. Once you’ve taken the plunge, there’s no going back. Your members will expect to be kept in the loop as you bring your funding back into line. But, at the end of the day, you’ll be rewarded with an engaged membership and a far better appreciation of you pension plan.