PSNC 2024: DB Plan Maintenance

How sponsors of defined benefit pension funds can enhance their maintenance of those offerings, plus considerations for including DB plans in the total retirement planning picture.

Maintaining a healthy defined benefit pension fund is a competitive advantage to plan sponsors and can give employers an option for providing retirement income for plan participants, according to speakers during a panel at the 2024 PLANSPONSOR National Conference in Chicago.

Continuing to offer a DB plan provides a value advantage to plan sponsors by giving participants a “guaranteed benefit,” explained Rob Massa, managing director and retirement practice leader at Qualified Plan Advisors.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

Plan sponsors can use their DB benefit to support their workers to create a stream of income in retirement, as pension plans have clear, demonstrated value to beneficiaries, added Massa.

“A lot of this conference has been talking about guaranteed lifetime income, and DB plans were the guaranteed lifetime income benefit that so many of our parents or grandparents grew up with,” he said. “We’re coming full circle with [defined contribution plans] and saying, ‘how do we make these things income tools?’”

Plan sponsors with existing or frozen DB plans, that are in surplus and considering plan termination could decline to close the plan, switching their outlook about the pension to use it as competitive differentiator for workforce recruitment and retention.

Maintaining a pension “is [an] incredibly competitive [advantage], certainly in the corporate DB market, [because] very few remain,” Massa added. “it’s not a common benefit, so it’s a huge advantage for competition for talent to say, ‘hey, we provide some kind of monthly income benefit [in] retirement through a pension plan.”

Milliman and Principal Asset Management research on pension plan funding found plan sponsors in the current market have a singular opportunity to choose to protect funding levels, terminate the pension entirely or accelerate de-risking of DBs as the funded status of many has improved to reach fully funded and near-to-fully funded status.

Instead of continuing to de-risk or terminate a pension, by switching their thinking plan sponsors also have opportunity to improve their participants’ prospects for generating lifetime income, added Brian Donohue, partner at October Three, an actuarial services provider.

Plan sponsor IBM reopened its frozen cash-balance plan in 2023 while ending contributions to the defined contribution plan and making 5% contributions instead to the DB plan for all the DC participants. The IBM DB plan was frozen to new hires in 2006.

Donohue’s message to DB sponsors: “you currently have a mechanism for providing retirement income that is unbeatable,” he said. The pooled pricing of risk attainable in DB plans cannot be beat in a DC plan, he added.

“Actuarial 101 [is] if you’re going to underwrite one life, there’s a wide range of potential ages of death [but] get 100 lives, you’re going to see that that expected average age really narrow down,” he added.

Donohue said he is “skeptical that any DC [plan] income solution ever is going to be competitive because I don’t see how they get past the individual versus pooled pricing,” he said. “A lot of people [are] looking around for retirement income solutions [and] I’ve seen 20 years of DC retirement solutions: They can’t compete,” Donohue said. “I don’t see how they can ever get past that mortality pool problem.”

Before entirely terminating a DB, plan sponsors should try to discern the total value it provides, he added.  

“Employers should understand that they have a DB plan that provides this mechanism to deliver higher retirement income than people can find elsewhere,” Donohue said. “And because of the way the rules work inside DB plans, it is especially true for women—where they’re going to get dinged in the private [annuity] market because of their longer life expectancy, but in a DB plan, they can get a better benefit.”

Using the DB plan strategically, removing some participants via voluntary early retirements, “in some situations actually provides a pretty big advantage to plan sponsors that want to manage their workflow and their people,” concluded Paul Moore, senior vice president, workplace consulting at Fidelity Investments.

PSNC 2024: Equity in Retirement Plans

Plan sponsors discuss innovative ways in which they address disparities in savings and participation within their retirement plans.

Plan sponsors with diverse workforces have an opportunity to offer innovate benefits that can address equity issues, including the retirement wealth gap and access to financial wellness solutions, across race and gender through their plans, according to panelists at the PLANSPONSOR National Conference in Chicago. 

Options at Thursday’s panel, “Equity in Retirement Benefits,” ranged from plan design decisions to providing benefit details in many different languages, but a key element all mentioned was knowing your participant pool and having the information to address their needs.  

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

In part to address that need for understanding the equity issues, Pam Hess, executive director of the DCIIA Retirement Research Center, noted a recent collaboration the group did with the Aspen Institute Financial Security Program and Morningstar Retirement to create a dataset, controlling for salary and tenure, that revealed substantial savings gaps. 

“When you look at a 55-year-old Black woman versus a white man [of the same age], the Black woman has 36 cents of the dollar saved compared to the white man, controlling for salary [and] tenure,” Hess said. “Those are big gaps.” 

Sal Naidoo, deputy managing director at SEIU 775 Benefits Group, which provides retirement benefits to home care workers in Washington state, said his team has been focused on addressing the systemic barriers that workers face to accessing retirement savings. 

Naidoo said the union’s employees work, on average, around 114 to 117 hours per month, often face volatility in the hours. The majority of its population are workers of color, first generation immigrants and non-English speaking caregivers. 

To serve this diverse population, Naidoo said the group’s plan design includes automatic enrollment for both full and part-time caregivers and provides 100% immediate vesting after completing six months of service. The tactic gets employees into the plan and saving within the early stages of the job. 

SEIU 775 Benefits Group also recently introduced in-service distribution options, allowing workers to take distributions while they work to address short-term spending needs, particularly for those who may need to work beyond age 65 but still need access to savings.  

“What it boils down to is understanding what the workforce looks like,” Naidoo said. “We only get a certain amount of information from our recordkeeper.” 

He said SEIU’s current project includes conducting a demographic survey, asking workers to voluntarily provide information like whether they are a member of the LGBTQ+ community, how many generations are in their household and other specific information in order to better understand the plan participants’ needs. 

In addition, Naidoo said SEIU 775 Benefits Group translates all of their plan materials into at least eight different languages and provides five fully translated participant portals.  

Beth Pattillo, director of retirement and financial wellness program at Leidos Inc.—a defense, aviation, information technology and biomedical research company headquartered in Reston, Virginia—said her plan has been on a “journey of data collection.”  

Despite representing a highly educated and well-compensated population, Pattillo said the company found through a financial wellness survey that people had high levels of financial stress and could not afford $400 emergency expenses. 

By delving into participant data, Pattillo also found that while the overall employee contribution rate was 11.2%, Black and Hispanic workers were only contributing between an average of 3% to 5% at younger ages. 

In addition to conducting more surveys, Pattillo said the plan is looking into offering auto enrollment, as well as putting in a non-elective contribution for people who earn less than $90,000 a year. 

“A lot of this is about education and data, and we’re just trying to figure out how we can meet people where they’re at,” Pattillo said.  

She said the plan is also trying to change the tone of its communications to avoid negative participant reactions. Telling people constantly that they’re not contributing enough to meet the match can make employees feel inadequate, she argued, and it is better to remind employees about the breadth of the company’s benefits offerings, including the plan, in addition to the match.  

Pattillo added that Leidos leverages after-tax offering as a way for people to build emergency savings. The company also launched a modified student loan repayment offering in 2020 and is exploring retirement income solutions in 2024.  

“The engagement isn’t always where we want it to be, but what we have found is that those that engage are so passionate about the services we have been providing,” Pattillo said. 

«