With pension plan cash-out programs from companies, such as GM making headlines, awareness of and interest in these types of offerings has increased.
Mercer has recently released its Six Tips for Success and a series of other resources for defined benefit (DB) retirement plan sponsors who are considering a participant cash-out program.
Plan sponsors face many challenges in providing a successful cash-out program and must consider the numerous implications for participants in explaining and addressing the right decision for the individual. Top considerations for plan sponsors include the following:
- Positioning the lump-sum cash-out option as another choice for participants to consider.
- Providing effective and personalized communication to participants to help guide them through their decision-making process.
- Analyzing data to ensure it’s complete and accurate.
- Being prepared to answer questions from a variety of stakeholders about the business rationale behind the cash-out offering.
- Understanding the fiduciary responsibilities as the plan sponsor.
- Choosing a provider that can effectively execute the entire cash-out program.
“Many well-funded plan sponsors are looking to reduce their DB pension risk via a cash-out offering,” said Andrew Yerre, a Mercer partner. “This is no small undertaking, and plan sponsors need to carefully weigh their options and develop plans with the needs and concerns of their participant population at the forefront.”
To help mitigate these issues, Mercer has developed the following resources to help clients evaluate their unique situation. Tools include the following:
- a white paper on six tips for DB cash-out success;
- videos highlighting key considerations for plan sponsors; and
- a case study and additional articles and resources.
“Pension cash-out programs are one of the options plan sponsors can consider when looking to reduce risk associated with these plans,” said Jonathan Barry, partner in Mercer’s Retirement business. “If they do take the cash-out approach, participants need help in order to make the right decision for their individual situation. The role of a plan sponsor as a skilled communicator in this process cannot be overstated.”