Administration December 11, 2015

A Pension Risk Transfer Choice Is More than Financials

Plan sponsors want more than a payout annuity provider when they go looking for an insurer. 
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Ongoing de-risking activity in pension plans is cutting a swath across market sectors, locations and firm sizes as plan sponsors make a move to transfer benefit payment obligations from their defined benefit plans to insurance companies.  

Selecting an insurer for pension risk transfer is a big decision, and a big commitment. Among other factors that motivate plan sponsors to unload the risk of a pension plan are rising Pension Benefit Guaranty Corporation (PBGC) premiums. The insurer’s financials are just a starting point. Plan sponsors need to assess how its retirees are going to be treated, educated and communicated with for years to come.

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Plan sponsors get an overview of these critera in “The Three Pillars of Exceptional Service Delivery,” a series of white papers from Prudential, that contends that the service in providing pension risk transfer has evolved. From a focus on the standard operational practices— data processing, retiree on-boarding, payment processing, record maintenance—providers now emphasize consultative practices: the insurers’ capabilities and communications with retirees before, during and after the plan transition.

“Insurers are not only assuming commitments to deliver a dependable stream of income to retirees, they are also promising to offer administrative services beyond issuing monthly payments,” explains Dave Casto, head of Pension Risk Transfer Service Delivery at Prudential Retirement. “Companies have recognized that their reputations are on the line if the selected insurer isn’t committed to providing retiree services at least as good or better than the retirees enjoyed with the plan sponsor.”

The three papers focus on a different aspect of service delivery: retiree communication and education, transaction and transition, and consultation and commitment. “Exceptional service delivery” is defined as an insurance company’s ability in four areas.

NEXT: Addressing the needs of plan sponsors and their retirees

Service delivery capabilities include the insurer’s ability to create a far-ranging plan that addresses all the plan sponsor’s and their retirees’ needs. Systems capacity is the ability to effectively onboard large populations of retirees and beneficiaries without payment interruption or data being compromised. Human resources proficiency is key, and an effective provider has a transition team in place to guide retirees through every phase of the transaction, as well as an experienced and dedicated customer service team to service retirees during the transition and beyond.

A good provider is committed to the customer experience, and is able to offer a variety of on-going communication and education touchpoints, so retirees can access information when they want to, and the way they want to.

Continuous evaluation and improvement of service delivery capabilities are critical, Prudential says, as well as their impact on the satisfaction of plan sponsors and retirees. Each year, people place more importance on good customer service. For example, in 2013 when asked about the helpfulness of the transition information Prudential provided, 73% said it was very helpful, while 94% indicated the same in 2014. When asked about welcome kits they received from Prudential, 79% of annuitants said they were helpful in 2013, while just a year later that figure increased to 88%.

“Once signed, group annuity contracts are irreversible,” Casto says. “This white paper series calls attention to the importance of insurer selection beyond financial measures and offers criteria for identifying exceptional service delivery capabilities and evaluating their effectiveness over time.”

The three papers—RetireeCommunication and Education; Transaction and Transition; and Consultation and Commitment—can be accessed from Prudential’s website. 

Compliance December 11, 2015

Plan Sponsor Errors At Heart of Appeals Court Ruling

Proper procedure is absolutely essential when it comes to fielding ERISA claims, as one plan sponsor has had to learn the hard way. 

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The United States Court of Appeals for the Seventh Circuit has backed a lower court’s ruling in the interesting case of Central Illinois Carpenters Health And Welfare Trust Fund vs. Con-Tech Carpentry LLC.

Unlike other recent court cases to make the retirement industry news headlines, this one is not gaining attention for its price tag or the intractable nature of the legal principles being debated. Instead the case presents some telling examples of clear-cut procedural errors which resulted in the 7th Circuit’s refreshingly short, 5-page decision approving some $100,000 in damages for the plaintiffs.  

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Simply speaking, the appeals court found no grounds to overturn a district court’s earlier decision to hold the plan sponsor liable for roughly $70,000 in delinquent contributions (plus interest and fees), owed to several multiemployer health and welfare benefit funds. This initial decision was based not on close consideration of the plan documents or contribution control practices of the plan sponsors—but simply on the fact that the plan sponsor apparently made no effort to formally answer the charges before some critical deadlines had passed.

As Mark Casciari, partner at Seyfarth Shaw LLP, and Christopher Busey, an associate in the firm’s labor and employement department, explain in a Lexicology blog post, the plaintiffs “sought roughly $70,000 in delinquent contributions from the defendant employer. The defendant failed to answer the complaint within 21 days. The plaintiffs then requested a default judgment, and the defendant again failed to respond. When the company failed to appear at the hearing on the default motion, the district court entered a default judgment.”

While the plaintiffs still had to submit adequate proof of damages, they did so successfully in the eyes of the district court, case documents show, leading to nearly $100,000 in total damages. As Casciari and Busey explain, only then did the defendants formally respond, “by filing a motion under Rules 60(b) and 55(c) of the Federal Rules of Civil Procedure. The district court denied the motion, and the company appealed.”

NEXT: Plan sponsors must mind court deadlines 

Casciari and Busey further explain that the company “could not rely on Rule 55(c) because it did not seek to set aside the entry of default until after the court entered judgment. The company’s arguments also could not satisfy the Rule 60(b) standard of ‘excusable neglect.’ It first argued that it believed answering was unnecessary because the parties were already discussing settlement. The court responded that a party can both answer a complaint and work towards settlement simultaneously.”

The text of the appellate court decisions explains the decision this way: Instead of properly filing a Rule 55(c) motion, “Con-Tech filed a motion for a stay in favor of arbitration. So by January 13, when the district judge turned to the subject of damages, the complaint had not been answered, a default had been entered, no Rule 55(c) motion had been filed, and Con-Tech had not contested the plaintiffs’ evidentiary submissions about relief. And once the district court entered its judgment, the time to seek relief for ‘good cause’ under Rule 55(c) expired.”

The appellate court explains Rule 55(c) clearly says that “to set aside a default judgment a litigant must file a motion under Fed. R. Civ. P. 60(b).” The requirements under that rule are steeper, for example in that relief under Rule 60(b)(1) depends on excusable neglect, and in that “appellate review is deferential,” as discussed/applied in the previous case Moje v. Federal Hockey League (7th Circuit 2015).

“Con-Tech filed a Rule 60(b) motion on January 15,” the appellate decision shows. “The motion also invoked Rule 55(c), but too late. Con-Tech told the district judge that it had not ignored the suit but had instead started negotiating with plaintiffs’ lawyers, seeking a satisfactory settlement. The judge replied that Con-Tech may not have ignored the plaintiffs’ demands, but that it had ignored the litigation.”

Casciari and Busey explain the defendants also “contended that filing a substantive response would waive its right to arbitration. The court held, however, that nothing prevents a party from answering with a demand for arbitration. The defendant thus failed to show excusable neglect and instead decided to march to the beat of its own drum.”

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