Companies considering a cash-out of their pension plans should not only define the goals and objectives of the program, but also make sure to try to address any potential pitfalls that could arise and interfere with the program's success.
That's the advice from Mercer, which offers the following six tips for any company looking to cash out their pension plans:
1. Position the lump-sum cash-out option as a positive opportunity. Make sure participants know it is an option and won’t be forced upon them. The lump-sum payment option allows each participant to make the decision that is best for his or her situation. Ensure participants know that their other options are still available.
2. Provide effective communication to participants. Companies should compare the lump-sum payment option to an annuity. Help participants understand the impact of deferring or not deferring payment. Each participant should evaluate their own personal family situation and financial needs by reviewing their overall financial picture and assessing their ability to manage money.
3. Take steps to ensure you have correct and complete data. Mercer recommends taking the time to analyze the quality of your data and perform cleanup where needed. Without the proper advance diagnostics, your project’s integrity may be compromised or limited.
4. Be prepared to explain your business rationale to a variety of stakeholders.
5. Understand your role as a fiduciary. Plan sponsors have a fiduciary responsibility to act in the best interest of the plan and its participants.