Is Your Pension Plan’s “Check Engine” Light On?
October 29, 2024
If a pension plan had a “check engine” light, you would be scheduling an appointment now for an independent review to determine ways your organization can save money and build efficiencies.
Tending to the routine maintenance of your plan to balance its assets and liabilities means you are conducting regular death audits to ensure accuracy, cleaning data to help control costs, possibly offering lump sum windows or retiree annuity purchases to reduce liability and decrease Pension Benefit Guaranty Corporation (PBGC) premiums and perhaps transferring pension risk to reduce or eliminate financial risk.
While these traditional plan management actions are often used by employers, they may not garner the kinds of positive results that modernizing your plan can achieve. What employers may not know is there are simple steps to modernizing pension plans, such as:
Conduct an independent |
Enhance the plan’s administration with current technology | Update the plan design |
Gain control of your investments with Liability-driven investing |
Seek an Independent Review
An independent review of your pension plan allows a different set of eyes to examine your plan, which often means valuable insight into the plan’s health and management. It is like getting a second opinion from a reputable auto mechanic known for expertise and reliable, trustworthy service.
USI Consulting Group’s (USICG’s) defined benefit plan experts excel at providing independent reviews of pension plans which help employers make informed decisions about changes to their plan – or confirm that their plan is operating satisfactorily. Among the most critical pension plan studies we conduct are:
Experience Study | Liability Study |
Our experts take on the role of plan sleuths checking assumptions, analyzing and managing risks, and fine-tuning the plan as needed. This review provides a detailed look at the plan’s recent history and compares it to projections of the health and management of the plan over a specific period. | USICG’s team provides a thorough financial review of the plan, determining the risk associated with the plan’s funding status. Understanding these risks enables employers to make important decisions about modernizing the plan. |
Embrace 21st Century Technology
Modernizing your pension plan may mean venturing into current technology that builds efficiency for your organization and improves engagement with plan participants. Outsourcing plan administration to a third-party administrator can help accomplish those objectives while also lowering your overall plan costs.
Our plan administration platform, RetirementFocus™ provides an online portal for employers, which promotes efficiency as:
- All data is organized in one place, making it quickly accessible, easy to review, and readily available for special projects
- Customized reports are created specifically for your organization
- Automated emails to participants to communicate important deadlines or messages
The real value of current technology, however, is what employers can offer to pension plan participants. Employees are often more familiar with their 401(k) plan accounts, but they should also be aware of the value of the pension benefit they are accruing through their service to the company. Offering access to pension benefit information through a modern platform supported by knowledgeable service center analysts can be major factors in retirement planning education and retention.
24/7 account access
USICG’s RetirementFocus™ is a comprehensive, online self-service tool that provides pension plan participants access to interactive calculators that can be used to render unlimited benefit estimates and retirement planning displays, access benefit statements and request a formal document package to begin the retirement process.
Dust Off That Plan Design
It is well known that an attractive benefits package can help attract and retain talent. Whether your plan was designed a decade ago – or several decades ago – there are changes that can be made today that will create savings and efficiencies for your organization. Our pension plan experts can help you modernize your plan design, including hybrid designs that enable employers to combine the best of pension plans and 401(k) plans to provide a more stable future for employees.
In addition, new plan designs can offer extra tax-saving options for the business owner or executive teams. For example, USICG’s Direct Recognition Variable Investment Plan (DR-VIP) is a business-smart solution for mitigating employer liabilities and continuing tax-deductible contributions. Traditional cash balance plans are another way to provide additional tax savings beyond direct contribution plan limits.
Gain Control of Your Investments with Liability-Driven Investing
Employers may also reduce volatility in funding status and fewer contribution surprises by implementing a liability-driven investing (LDI) strategy. As with any strategy, the benefits are accompanied by trade-offs, such as potentially lower returns, and by challenges including managing equity interest rate sensitivity. Strategic de-risking monitored by an experienced integrated actuarial and investment advisory team helps employers make decisions confidently and mitigate risk. USICG’s Funded Status Risk Optimizer is an interactive tool that illustrates the impact of equity market and interest rate movement on an employer’s pension plan’s funded status. This tool is designed to ensure each client’s asset allocation – and return/risk objectives – is truly aligned with potential outcomes due to market movements. The Funded Status Risk Optimizer offers a visual display of dozens of scenarios which promote a discussion of hypothetical market events that impact the funded status of the pension plan. As a result, clients can make prudent decisions concerning their plan’s investment strategy.
Implementing an LDI strategy allows employers to lock in their funded status gains and better preserve them going forward. Our team of experts can help employers identify gaps in their pension plans and take appropriate actions to modernize their pension plan strategy to attract and retain today’s employees.
Case Study: Hospital benefits from USICG’s strategy and guidance
A hospital with over 2,000 pension plan participants hired USIGC to help address funding risk concerns and high plan costs, including PBGC premiums and increasing variable rate premiums. Our experienced actuarial team performed the plan’s annual valuation which revealed the plan was underfunded. Additionally, a longevity study to project the impact of the hospital’s employee base on its pension funds was completed.
We advised the client to accelerate plan contributions above the annual minimum funding requirement which enabled the hospital to reduce pension required minimum costs by 1% of unfunded liability (approximately $200,000) while also reducing the variable rate premiums by moving the plan funding to a higher level.*
Liability-Driven Investing (LDI) — What you need to know now
Join us for our next webinar (eligible for SHRM credit) on Thursday, November 14th as we team up with The Wagner Law Group to discuss the benefits of LDI and demonstrate a proprietary tool that shows how interest rates can affect a pension plan's funded status.
How USI Consulting Group Can Help
Need help improving your pension plans? We have been partnering with organizations of all sizes to create, modernize and proactively progress their pension plan strategies since 1975, and we can do the same for you.
To learn more, please contact your local USICG representative, visit our Contact Us page or reach out to us directly at information@usicg.com.
* Actual results will vary and are dependent upon various factors including, but not limited to: number of participants, total plan asset value, management fees, administrative costs and services provided.
Investment advice provided to the Plan by USI Advisors, Inc. Under certain arrangements, securities offered to the Plan through USI Securities, Inc. Member FINRA/SIPC. Both USI Advisors, Inc. and USI Securities, Inc. are affiliates of USI Consulting Group.
This material has been prepared for informational purposes only and is not designed to be a comprehensive analysis of any topic discussed herein and should not be relied upon as the only source of information. Additionally, this information is not intended to represent advice or a recommendation specific to your plan. Neither USI nor its affiliates and/or employees/agents/registered representatives offer legal or tax advice. Prior to acting on this information, we recommend that you seek independent advice specific to your situation from a qualified legal/tax professional.| 2124.S1018.0058
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