The effect of COVID-19 has been devastating for some businesses. In a relatively short amount of time, we’ve seen thriving businesses brought to their knees—some closing temporarily or for good. Others, anticipating a longer recovery period, are considering some difficult changes such as laying off workers.
If your company is being forced to downsize or temporarily close, don’t forget that you can leverage your defined benefit plan during these difficult times. You can make the transition for your employees more palatable by:
- Offering an early retirement window:During an early retirement window, you are able to offer enhanced benefits to encourage retirement. Consider offering medical benefits to bridge the gap and to make the offer even more worthwhile. Although an early retirement window reduces active participant cost, it can increase the cost of pensions paid over time (but is less problematic with well-funded plans).
- Lowering Normal Retirement Age:Amending the plan to lower the Normal Retirement Age would allow employees to collect full retirement benefits earlier while working elsewhere. This should be carefully considered as you could risk losing high-quality workers to competitors, and a lower Normal Retirement Age becomes a permanent feature of the plan.
It’s possible you will need to consider more drastic action and close your doors permanently. If you are unable to fund, manage, or administer the plan, a plan termination is the likely scenario. In these unprecedented times, remember your defined benefit plan can ease the pain as you make difficult decisions such as workforce reductions.
As you consider taking action and want to discuss how you could leverage your defined benefit plan, contact your Milliman consultant.
This blog post is the second of a three-part series on workforce management during the coronavirus pandemic.