New Optional Plan Benefits

A variety of distribution options offer clients the opportunity to choose the retirement payout option that best serves its employees. 

Background:

Our client, a large nonprofit health system, provides a full range of services to a mid-sized city and surrounding suburban and rural areas. These services include inpatient, outpatient, emergency, and outreach health care programs and insurance services.

The health system provides a cash balance pension plan to most of its employees. Under this plan, employees have the option at termination of employment (or retirement) of taking their entire benefit in the form of a lump sum cash payout or the option of a monthly benefit payable for life (or joint lives). Alternatively, the terminated employee could defer the choice until a later date and, meanwhile, leave the account balance in the cash balance plan to continue to accumulate further interest credits.

At a later date, the terminated employee could exercise the same option between a lump sum and the monthly benefit payable for life (or joint lives). Recently, the client wanted to extend the retirement payout options for its employees. The health system felt that the all or nothing choice between a full cash payout and monthly benefit was too limited and did not present retirees with the secure and flexible retirement distribution possibilities.

Strategy:

Findley’s Actuarial Practice assisted the system in reviewing the plan retirees’ financial needs and expectations during retirement, studying various new options for retirees and calculating the estimated cost of the implementing the new options. The review resulted in new optional forms that allowed new retirees more options for collecting their retirement benefit.

The new optional forms allowed the benefits to be distributed partly in the form of a lump sum cash payment and partly in the form of a monthly benefit payable for life. Further, a partial lump sum cash payment can be taken at one date and the remaining account balance left in the cash balance plan to accumulate further interest credits. This remaining accumulation may be paid out under the new options at a date of the retiree’s choosing.

To help current employees make this decision, a communication effort was undertaken with the help of Findley’s Change Management Practice to focus on improving employee understanding and appreciation of the new optional forms. Introductory communication material was designed and the new options were introduced as part of a system-wide retirement “fair.”

Results:

The new plan distribution options were well received by participants with more attendees than expected at the retirement fair. The health system is pleased that newly terminated employees and retirees have further options to plan for their economic security during retirement.

Category: Findley Proof
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