How and when to make benefit improvements
For the past several years investment returns have been favorable for defined benefit pension plans. These favorable investment returns, combined with past actions taken by Boards, have resulted in significant improvement in the financial position for many pension plans – with some close to or exceeding fully funded status. This positive rebound has given Boards the opportunity to now consider making benefit improvements.
Considering Benefit Improvements
How and when to make benefit improvements is a decision that is unique to each plan. The level of spending on benefit improvements will depend on different factors, such as:
• Current and projected funded status
• Maturity levels
• Projected cash flows
• The Board’s risk tolerance
In addition, benefit improvements may be influenced by considerations about generational benefit equity (active vs. retired), and benefit restoration. Benefit improvements can be directed towards prior service benefits, future benefit accruals, ad-hoc increases, or improving/restoring other plan benefits such as early retirement subsidies, death benefits and disability benefits. With all of these factors, some Boards have adopted formal Benefit Policies to guide the decision-making process related to plan benefit improvements.
Communicating Benefit Changes
Letting active and retired participants of plans know about any improvements could make a positive impact on the perception of the plan and help plan participants better understand their benefits and how the changes might affect them.
As part of the implementation process, Boards may want to consider a variety of communication options to announce the benefit improvement decisions, such as an eye-catching mailer or letter sent to homes, information posted to websites or in newsletters, or flyers/other handouts made available in breakrooms or union locations.
If your plan is thinking about making benefit improvements, Rael & Letson can help you create a strategic and thoughtful approach that supports the plan and participants, including developing clear and effective communications to help you keep plan participants informed. Contact us.