"Unofficial" Estimates of DB Benefits

[Guest DBS1]

I'm so impressed with the knowledge here. I'm starting my 8th week at a new job and I need opinions.

This company sponsors both a DB plan and a 401(k) plan (with a match). I used to work for attorneys so maybe I'm paranoid... This company routinely produced spreadsheets with "unofficial pension estimates" to participants interested in knowing their amount at NRA and other various ages (reduced). This was done to save actuarial fees. The spreadsheets my predecessor used for these are ridiculous, some with over 20 tabs, cells linked to other workbooks that I don't have, just an error waiting to happen. My predecessor and the company did this to "be nice" to employees but I'm seeing it as unnecessary risk exposure. All it takes is one wrong one to a litigious person and we have a virus in our employee population.

I am going to recommend we stop providing these and wanted to bolster that with more than just my own paranoia and training which is that you never put in writing an estimate, especially when it contains no reference to the plan doc, no caveats. It simply says this is "unofficial" and will be recalculated by the plan's actuary when you actually apply for your benefits. This plan covers approx 3,000 people.

Any input from experts out there? And it's not because I don't want to calculate the estimates, I would love to but I'm not an actuary. The spreadsheets I "inherited" however, are fraught with peril. The columns go out to HZ and the rows to about 370 for each person. YIKES! I might be able to clean them up and put in nested formulas, but I wanted to see if there was support out there in the DB / actuary world for NOT doing such estimates. Or am I just paranoid?

Thoughts anyone?? Thank you in advance!

[Andy the Actuary]

Your gut instincts are wise. Don't send out estimates unless you understand the system's mechanics or you have a recent piece of paper provided by the Actuary that certifies he/she has reviewed the process blah blah blah. Any estimates should qualify they are estimates and that amounts illustrated may be greater than or less than actual amounts based upon the history of service and compensation at time of termination as well as verification of dates of birth, etc. If you must illustrate a lump sum, use a high enough interest rate so that the final lump sum is greater. Remember no matter how often or in how many ways you say "estimate," all that may be heard are the numbers.

Relief is on the way. Starting whenever the DOL can find their "round tuit," there is a new requirement to provide either a benefit statement or notice that a benefit statement may be requested. This should happen in 2009. The preferred approach is to have the actuary* provide an annual benefit statement (unless the Plan is frozen). This should satisfy the legal requirements as well as continue to sell the benefits of the Plan, which the world now appreciates in light of the past few months economic Armageddon.

I don't care to be critical of the unknown so I will leave it up to my cohorts to express precisely how convoluted this spreadsheet morass sounds.

*This is a common by-product of the actuarial valuation.

[Guest DBS1]

Your gut instincts are wise. Don't send out estimates unless you understand the system's mechanics or you have a recent piece of paper provided by the Actuary that certifies he/she has reviewed the process blah blah blah. Any estimates should qualify they are estimates and that amounts illustrated may be greater than or less than actual amounts based upon the history of service and compensation at time of termination as well as verification of dates of birth, etc. If you must illustrate a lump sum, use a high enough interest rate so that the final lump sum is greater. Remember no matter how often or in how many ways you say "estimate," all that may be heard are the numbers.

Relief is on the way. Starting whenever the DOL can find their "round tuit," there is a new requirement to provide either a benefit statement or notice that a benefit statement may be requested. This should happen in 2009. The preferred approach is to have the actuary* provide an annual benefit statement (unless the Plan is frozen). This should satisfy the legal requirements as well as continue to sell the benefits of the Plan, which the world now appreciates in light of the past few months economic Armageddon.

I don't care to be critical of the unknown so I will leave it up to my cohorts to express precisely how convoluted this spreadsheet morass sounds.

*This is a common by-product of the actuarial valuation.

Thank you Andy. You are so right and that is the perfect word, morass. I left it alone being new and all, but now that I have my bearings, I am horrified by the spreadsheets. No matter what you were thinking about the spreadsheets, I'm here to tell you, it's WORSE. No one wants to read me whine about it. I'll describe it as an onion wrapped in a spider web and bound up in one of those rubber band balls. My overall concern was those inappropriate "estimates." I know how people are when they hear or read a number. It is good to know my instincts were right, even if I am a little paranoid.

I hope to read more opinions. I thank you for taking time to respond to my post.

[Effen]

You could always talk to your actuary and see if they can do estimates at at reduced price, or if they would help you write/review a spreadsheet for your own internal use. I have several clients who I helped develope something they could use for estimates. There may be an upfront charge, but it may save you money in the long run.

[Guest DBS1]

You could always talk to your actuary and see if they can do estimates at at reduced price, or if they would help you write/review a spreadsheet for your own internal use. I have several clients who I helped develope something they could use for estimates. There may be an upfront charge, but it may save you money in the long run.

Thank you, Effen. (I like that screen name!)

You have provided me with a very good starting point... "Where is the documentation from our Actuary showing how to use these spreadsheets?" as a start a friendly conversation with my boss. I can't wait...!

[tymesup]

I'm so impressed with the knowledge here. I'm starting my 8th week at a new job and I need opinions.

This company sponsors both a DB plan and a 401(k) plan (with a match). I used to work for attorneys so maybe I'm paranoid... This company routinely produced spreadsheets with "unofficial pension estimates" to participants interested in knowing their amount at NRA and other various ages (reduced). This was done to save actuarial fees. The spreadsheets my predecessor used for these are ridiculous, some with over 20 tabs, cells linked to other workbooks that I don't have, just an error waiting to happen. My predecessor and the company did this to "be nice" to employees but I'm seeing it as unnecessary risk exposure. All it takes is one wrong one to a litigious person and we have a virus in our employee population.

I am going to recommend we stop providing these and wanted to bolster that with more than just my own paranoia and training which is that you never put in writing an estimate, especially when it contains no reference to the plan doc, no caveats. It simply says this is "unofficial" and will be recalculated by the plan's actuary when you actually apply for your benefits. This plan covers approx 3,000 people.

Any input from experts out there? And it's not because I don't want to calculate the estimates, I would love to but I'm not an actuary. The spreadsheets I "inherited" however, are fraught with peril. The columns go out to HZ and the rows to about 370 for each person. YIKES! I might be able to clean them up and put in nested formulas, but I wanted to see if there was support out there in the DB / actuary world for NOT doing such estimates. Or am I just paranoid?

Thoughts anyone?? Thank you in advance!

Here's my two cents.

The risk associated with these estimates may be proportionate to the number of participants. The cost to do them goes up with the number of participants, but drops off steeply. For 3,000 participants, it must pay to have them done right.

The large number of columns and rows does not inspire confidence this is being done right. If nothing else, it's got to be difficult to debug or modify the spreadsheets.

At the same time, the more stuff you can put in participants' hands, the more the plan will be appreciated. It's hard to get excited about a plan that gives you stuff maybe once a year, stuff that's way out of date. Compare that to 401ks where participants can check their balances daily, move money from fund to fund and understand what the numbers mean.

[Andy the Actuary]

At the same time, the more stuff you can put in participants' hands, the more the plan will be appreciated. It's hard to get excited about a plan that gives you stuff maybe once a year, stuff that's way out of date. Compare that to 401ks where participants can check their balances daily, move money from fund to fund and understand what the numbers mean.

Participants will appreciate their DB plans more if you include with each pension statement a graph of the DJ and S&P500.