Lump Sum Windows: Focus on the Participants’ Experience

Lump sum windows have become extremely popular among defined benefit plan sponsors thanks to increasing PBGC premiums, expected improvement to future mandated mortality tables, interest rate changes, and the desire to de-risk. A lump sum window allows an eligible vested participant to elect to receive an immediate lump sum payment, begin receiving monthly annuity payments, or defer benefit payments to a later date. There are multiple steps involved in achieving a successful lump sum window, including: setting expectations, amending the plan to allow a lump sum window, scrubbing participant data, calculating lump sum values, communicating payment options, fielding participant questions, setting deadlines, processing election forms, establishing appeals procedures, paying benefits, and measuring success. This article focuses on best practices to optimize the participants’ experience, as this will influence the overall success of the lump sum window.


Good data is essential. Benefit calculations are based on participants’ data. Data elements include correct Social Security numbers and dates of birth for participants; the names, dates of birth, and Social Security numbers of spouses; years of service; and compensation.

The need for good data goes beyond benefit calculations; the quality of your data also affects the success of your communications.

One of the biggest challenges plan sponsors face is getting in touch with terminated, vested participants who haven’t been on the payroll in 5, 10, 20, or more years. Mailing information to bad addresses is expensive and time consuming. Before the first piece of mail drops, sponsors (or their lump sum window consultant) should conduct a full address search. This will save time and money in the long run.

Communicating the Lump Sum Window

The first step in communicating with eligible participants is to develop a strategy and schedule. What information do you want to provide, how do you want to provide it, and when do you want to provide it? Most materials are provided in print format, but some may be available through a web site.

Once you accomplished step one, it’s time to start communicating the lump sum window to eligible participants. A best practice is to announce the lump sum window in advance of the opening. A simple, sponsor-branded postcard letting participants know that more information is on the way is effective. This approach accomplishes two things: 1) it lets participants know that they will receive an important packet of information from the plan’s sponsor and 2) it will let the administrator know about bad addresses that weren’t caught during the initial full address search. (And yes, even with a full address search, some addresses will be bad, and some participants will be “lost.”) Announcement postcards are sent between two and three weeks before core communications are distributed. Participants can take the time between receipt of the postcard and decision guide to consider their options and schedule a meeting with their financial advisors.

Core communications typically include a decision guide, personalized election forms (a must), and frequently asked questions (FAQ). These items may be sent at one time or in stages. If in stages, the election forms should follow the decision guide and FAQ.

The decision guide and FAQ provide information about the duration of the lump sum window, the pros and cons of each option, and a list of things participants should consider during the decision-making process. The materials should indicate any limits that may be in place as far as the dollar value of individual lump sums or the aggregate value of the lump sum available. The decision guide and FAQ must also clearly state any deadlines that must be met by participants who want to take advantage of the lump sum window offer, and what will happen if the deadline is missed (will another lump sum window be offered at a later date, will the participant need to wait until reaching the plan’s normal retirement date, etc.).

The personalized election forms include the participant’s personal information (i.e., name, date of birth, and, when applicable, spousal information). Election forms provide the participants’ with payment options and the estimated benefit amount for each option. Eligible participants who want to take advantage of the lump sum window must confirm or correct the information that appears on the personalized election forms, elect a payment option, and return the forms by the deadline indicated. Including a prepaid, business reply envelope is an added convenience for participants. Doing so may add a dollar or two per responding participant to the overall cost of the lump sum window, but the added convenience can counteract a tendency to procrastinate on the part of participants; a tendency that could cause them to inadvertently miss a deadline.

Speaking of procrastination, remember Scarlett O’Hara’s favorite saying (other than fiddle dee dee), “I’ll think about that tomorrow.” Many participants will set the information they receive aside with every intention of dealing with it later, but something comes up, or they forget about the offer, or can’t remember where they put the election materials. You know where we’re going with this, right? Remind them that they have a deadline. The easiest way to do this is to send a reminder postcard, scheduled to arrive within two weeks of the deadline.

Ensuring a Satisfactory Participant Experience

Participants are going to receive a lot of complex information in a very short period of time, and the key to a successful lump sum window is making sure participants understand the information they receive.

Know that questions will be asked and be prepared to minimize participants’ frustrations by providing easy-to-use ways for participants to ask those questions. We recommend using a dual approach that includes a dedicated email response team and a toll-free call center. Both methods need to be staffed by people who understand the options being offered and can provide participants with accurate information about the dollar amounts involved and payment options available. Call centers are particularly effective, because participants can get immediate answers to their questions, rather than waiting for an email response. Consider providing the call center staff with a plan-specific benefit calculator that will enable the call center representative to take information from the participant over the phone and calculate the actual benefit on the fly.

Consider implementing the following best practices:

  • Encourage problem escalation. When a call center representative doesn’t know an answer or is confronted by an aggressive participant, the call center representative should escalate the call to a senior team member.
  • Follow the script. To ensure a consistent message among all call center representatives, consider developing a script for common situations and frequently asked questions. This prevents call center representatives from giving wrong information and participants from misinterpreting a representative’s response.
  • Train early and often. Continuously train call center representatives and hold regular meeting to build their skills, share positive participant stories, and answer any outstanding questions or issues. This builds call center representatives’ confidence and provides a forum for sharing experiences and solutions to problems.
  • Keep and share detailed logs. This best practice allows call center representatives to know what a participant has called about in the past, what the participant was told, and tell the participant what is still pending or needed.
  • Track progress. Develop an organized system to track checked, rechecked, and completed election forms. Keeping election forms organized is vital to completing the project.
  • Consider reminder calls. With the 2016 presidential election behind us, most of us can honestly say we are tired of robo-calls, but as the deadline to respond approaches, you may want to consider using out-bound reminder calls to eligible participants who haven’t returned election forms.

It’s a Wrap

Once completed election forms are received, benefit calculations can be finalized, annuities can be purchased, and lump sum payments can be made.

A Lump Sum Window Case Study

In 2015, Findley was hired by XYZ, Inc. to support its lump sum window. In order to complete this project, we calculated lump sums, sent communications to participants, fielded participant questions with a call center, processed election forms, and set up payments.

Our first communication piece was an announcement postcard, which was sent approximately two weeks before sending a combined decision guide/FAQ. This was approximately four weeks before the window opened. The announcement postcard let participants know that more information would be coming and encouraged them to begin the decision-making process by making an appointment with their financial advisors.

After both the announcement and decision guides were mailed, we prepared estimated lump sum calculations and sent out election kits to all eligible participants. Election kits were sent out a few days before the start of the window to target participants receiving the kits on the day the window opened.

We also sent a reminder postcard about two weeks before the postmark deadline for the window. The reminder postcard helped to get any kits from participants who were procrastinating and may have forgotten to send them in, helping to increase the acceptance rate for the window.

Email and a call center played an important role in the communication strategy. Naturally, when a temporary benefit is offered, the volume of questions and calls from participants drastically increases. In order to manage this, we set up a temporary email address and a call center. A few statistics from our experience are listed below:

Calls received — 5,226

Emails received — 1,517

In order to handle the number of emails and calls from participants, we trained and staffed the call center with 13 team members. A schedule was established so that each team member would work in the call center in two-hour shifts each day. This gave us the flexibility to increase or decrease the number of representatives available at one time based on the volume of calls actually received. During peak call times, we made sure that more representatives were available to take calls.

In order to optimize workflow, call center representatives processed election kits during their shifts. This allowed call center representatives to focus on XYZ, Inc. and give callers top-of-mind, accurate information. Processing kits included using a checklist to ensure that each kit was properly completed and all required documentation was included. When incomplete kits were found, call center representatives would call the participants involved to let them know what information was needed and enter details about the conversation and the missing data in the lump sum window utility. The utility, which is a database that housed participant data and could be accessed by multiple users, provided call center representatives with a complete record of all calls. This way, if the participant called back and a different representative answered, information about what was needed was easily available. As kits were processed, payment information was entered into this utility. Each kit was checked for completeness twice and cross-checked against the payment information in the utility to confirm accuracy.

Once the window closed, all kits were rechecked, and all payment information was entered in the utility, and eventually exported to an Excel spreadsheet. Data was scrubbed, formatted and uploaded to the trust payment system. This was a two-step process, lump sum payments were processed first, followed by annuity payments for all participants who elected annuities as a part of the window.

Measuring Success

XYZ implemented the lump sum window as a de-risking strategy. By reducing the number of participants in the plan, XYZ reduces plan liabilities and future PBGC costs. The results are below:

Eligible participants — 4,069

Accepting participants — 2,516

Acceptance rate — 61.8%

Lump sum payments — $112 million

The final results of the lump sum window included completing the project on time, and under budget and achieving our client’s desired outcome. XYZ considered this lump sum window offering a huge success.

Lessons Learned

As we would from any experience, we learned several things we would do differently for future projects. While processing returned kits, we noted several changes to our forms that would make them more clear and easier to complete, including:

  • Adding a space for the spouse to print his/her name in addition to signing the spousal consent. Most signatures were not legible and were, therefore, difficult to match with marriage documents.
  • Matching payment information requested on the forms to data loaded to RPP. For example, if the payment system will only accept 36 characters for the name of a rollover institution, on the forms to participants we should indicate a 36 character limit for that blank.
  • Including more information about Qualified Domestic Relation Orders (QDRO). The forms we sent included a question asking if the participant is aware or unaware of a QDRO that may affect his/her benefit from the plan. Participants generally did not understand this and were very frustrated.
  • Mailing the FAQ along with the application. This would reduce the number of calls received for no reason other than to ask how much the lump sum would be.

In Perspective

A slow economic recovery, low bond rates, and increasing life expectancies continue to push defined benefit plan liabilities skyward, while increasing PGBC premiums are adding to cost. Given the current economic environment, we expect to see more pension plan sponsors turn to lump sum windows as a preferred method of de-risking their plans. If you have questions or comments concerning lump sum windows, please contact your Findley consultant.

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Category: Our Perspective, Retirement Plans