Retirement Program Redesign/Benefit Replacement Analysis

Challenge:

A publishing company produces a daily newspaper that services a tri-state area. The Company offers a highly competitive benefits package to its salaried employees, which includes a defined benefit pension plan and a defined contribution 401(k) plan.

Faced with considerable economic pressure on its retirement plans, legislative changes, and competitive forces, the Company opted to analyze a redesign of its retirement program.

Strategy:

Findley ’ actuaries prepared a cost analysis for the defined benefit plan to project costs under various design alternatives and interest rate assumptions. After considerable analysis of the impact to the Company and employees, a decision was made to freeze the pension plan.

Our retirement consultants prepared several scenarios of plan design formulas for the defined contribution plan. The information included a summary of the total cost under each scenario, a comparison of the number of employees affected positively or negatively by the change in benefits, and any applicable projected compliance results.

Results:

The Company determined they were committed to delivering a retirement benefit equal to what would have been delivered under the defined benefit plan. Although the current expenses in the near term for both plans exceeded their current costs, the Company focused on its ability to reduce the volatility of future costs.

To encourage employees to take charge of their retirement savings, the 401(k) plan was enhanced with a better employer match and a new discretionary contribution. Current employees received an enhanced benefit based on their age and years of service as of the date of the freeze. An allocation rate was derived for each category making the majority of the participants “whole” (as it relates to their original defined benefit plan benefit).

Since the benefits delivered to the affected participants vary for highly and non-highly compensated employees, non-discrimination testing must be demonstrated annually.

Final Steps:

Employees needed to understand the specific changes and rationale for making those changes. Findley assisted the organization with:

  • Group meetings. Our retirement consultants walked employees through the reasons for the change and specific plan details.
  • Personalized information packets. Each employee received information that included a personalized statement showing the impact.
  • One-on-one meetings. A Findley consultant personally met with each employee to be sure he/she understood the changes.

As a result, we lowered the Company’s risk of retention problems among key talent. The Company’s Chief Financial Officer commented on the initiative, “Every employee knew where they stood on their path to retirement – in a way they never did before.”

Analyzing options to change retirement plan benefits leads to enhanced long-term financial performance for this organization.

Category: Findley Proof
Share: