Tag Archives: Lisa Grove

Addressing problematic defined benefit data

Defined benefit (DB) plan sponsors often express how complicated their plans are to administer.  Many times, the reasons are due to unique plan provisions, but more frequently are related to missing and/or incomplete historical participant data.  As plan sponsors move to outsourcing their DB plan administration, these data issues need to be addressed during the conversion process. These issues directly affect the efficiency of the ongoing administration.  Tackling data issues can become overwhelming, but with thoughtful planning and consulting, data concerns can be mitigated, if not eliminated for the most part. 

What exactly is bad data?   A common request during the vendor search process is to have the plan sponsor provide some indication of the state of the data.  The initial reaction to this request is typically along the lines of “we have data and our actuary is using it to produce a valuation report each year, so what’s the concern?”  Actuarial quality data and administration quality data are not the same.  During the annual valuation process, the calculations used to determine the plan liabilities are based upon approved actuarial assumptions and are not designed to be exact; they only need be reasonable, justifiable, and within defined parameters. By contrast, individual participant calculations are based on the plan’s formula and historical data specific to each participant.  The participant is relying on these calculations to make an important financial decision; as such, it is critical and that the data used for benefit calculations be accurate.

“Bad” data can cause problems. For example, bad data could result in the participant receiving overstated or understated amounts when modeling benefits or when electing to begin receiving benefit(s).  The data needed to calculate a benefit that can be “bad” is specific to each DB plan.  The data elements frequently found to be problematic include historical salary and hours needed to calculate accruals as well as employment status details needed for service calculations.  This is true for both traditional and cash balance plans.  In the event the plan has had other plans merged into or divested from it, the historical participant indicators, grandfathered benefit amounts, and identification of deferred participants and vested amounts can be lost.  For plans that have existed for a long time, certain data elements may only exist on paper files in a basement storage space or another questionable location.  It is no wonder plan sponsors are anxious when this question is posed or do not fully understand the importance of a candid response. 

How can we clean it up?  Identifying what you don’t know is impossible; however, the annual valuation data is a good place to start.  This file will include any participants used to determine the plan’s liability and should list all participants actively accruing a benefit, those with a deferred benefit, and those currently receiving a payment from the plan.  This can be the starting point to determine what might be missing or incomplete.   Your actuary can also document the assumptions being used and can often indicate missing underlying data needed for calculations and provide direction on how to determine a value for these participants.   

Analysis of the data elements used in your calculation can be extracted from the valuation file.  If this review is taking place during a conversion to a new administrator, your conversion team can identify which participants are missing data elements and which elements could be suspect.  Once identified, data can be collected from other sources to be aggregated and used within the calculation.   Participants can also be flagged to indicate data is missing that must be collected before any projected benefits are presented to the participant.  For deferred participants missing an accrued benefit amount, once the data is identified, the benefits can be calculated and subsequently certified.  This clean-up process can be performed in conjunction with or following a conversion project, depending on resources.

Data challenges are common. Many DB plans have experienced the transition from paper-based data to digital data and, as a result, the plan’s underlying data has likely existed in many forms over time.  Once the issues are clearly identified, the results of the clean-up effort will benefit both the participants and the plan.  The data review could identify administrative errors that lead to the need for Voluntary Compliance Program (VCP) updates or the identification of missing participants, which will be beneficial to identify early for valuation purposes and compliance concerns in preparation for plan termination. Spending the effort to address data issues provides confidence in ongoing administration of the plan and will allow for more accurate valuations in the future.

Five tips to ensure a smooth transition to outsourced pension administration

Your organization has made the business decision to outsource your benefits administration. So now what? You may be dreading the upcoming and likely unfamiliar process while at the same time dreaming about the day you are able to hand off the day-to-day responsibilities of plan administration. Those responsibilities can include a day with a fully staffed call center to field participant calls; a user-friendly website for participants; and a team of benefit professionals dedicated to providing exceptional service to you and the plan’s participants.

As with many things in life, it is all about how you get started. The effort and attention given during the conversion process can set the stage for proper and efficient administration in the future. The conversion team of your selected vendor will have a well-defined process designed to streamline the administration of your plan, but you and your staff will be a key factor in facilitating the achievement of this goal.

Here are five tips to ensure as painless a transition as possible for you, your participants, and your new plan administrator. 

  1. Gather and organize plan information  
    Once a new administrator has been selected, begin to gather the information needed to administer your plan(s). For defined benefit (DB) plans, this includes plan documents and amendments, summary plan descriptions, and recent valuation files and sample calculations. Determine data sources needed for both historical and ongoing needs. Identify required interaction with other service providers—your payroll vendor, check writer, and actuary. It’s also important to provide details regarding any upcoming plan changes if any are being considered. This part of the process can be the most labor-intensive for your benefits team, but it is also the part that will allow for the greatest success.       
  2. Be clear about your current challenges
    You know what makes your plan(s) challenging to administer. Share your pain points and be specific about your expectations of the new system. Do you have manual processes that could be automated? Are there certain groups of employees or participants that will be sensitive to any changes? Do you have concerns about missing data? Making sure your current challenges are outlined clearly will help your new administrator determine the best solutions.
  3. Be open to changing existing processes
    It can be uncomfortable, but don’t let “we’ve always done it this way” prevent you from benefiting from possible process improvements. Explain your business needs clearly, and allow your new administrator to share best practices. They will thoroughly review and analyze all current administrative processes and procedures and make recommendations for effectively streamlining when appropriate. Look at this as an opportunity to make things easier for your organization and your participants while increasing efficiency and managing costs.
  4. Actively participate in the process
    You will be involved in status meetings and process discussions throughout the conversion project. You will be asked to review new communication materials and, most likely, a new participant website. Your attention and participation in the process will be vital to the successful delivery of the services at the live date and beyond. You know how your plan “works” and what your participants will expect. Participating in the review of the setup will provide confidence that your plan will be administered in the proper fashion and that the plan’s participants will be comfortable with the transition.
  5. Share concerns as they are identified
    Open communication with your new administrator will be key to a successful transition. The conversion will typically be a project lasting several months, and you will likely have questions along the way. If there are decisions being made that you disagree with and/or think are confusing, bring that information to the team’s attention. Be open with your conversion team so that it can address concerns and make adjustments as needed. Turning over the administration of your plans(s) can be a daunting task and you should be comfortable with the assigned benefits team to provide you assurance that your plan is in good hands. Following these tips will help set the stage for a true partnership with your new vendor to administer your plan(s) in the future. Your participation in the conversion process will allow you to be confident that the plan will be administered properly and efficiently and that you will arrive at the live date with certainty.