Pension Plans & Total Rewards Statements

[TPApril]

Plan sponsor is preparing a total rewards statement showing what the employee's pay and benefits sum up to and doesn't know what to put down under the Pension plan line.

Doesn't seem to make sense to put their accrued monthly benefit. I'm curious what other plan sponsors do?  Put down the value of the accrued benefit earned in the year? put down the present value of the accrued benefit earned during the year paid as a benefit at normal retirement age?

[Effen]

Why doesn't it make sense to put the accrued benefit?  Is this a traditional plan, or a cash balance plan?  We do a lot of total rewards statements and usually we put the accrued benefit payable at NRD.  Some clients want to see an estimated LS value, but that can be dangerous due to changing interest rates.  Sometimes we use a more stable interest rate for a low estimate.  Really depends on what the sponsor wants to show. 

Projected benefits can also be tricky due to salary scale assumptions.  Often we would show projected benefit assuming no increase in comp - again, just to be conservative, but sometimes we include a modest salary increase assumption.  

[david rigby]

I agree with Effen.  Such statements should NEVER show a LS value; as stated, this can fluctuate significantly; if the plan has no LS option, it would be foolish to state or imply any LS amount.

Rather, the statement should show the AB, possibly including the years of credited service.  If the projected ben is shown, assume zero percent salary increase for future years.  Either should probably include a short statement identifying the concept of a life annuity, and (maybe) describing the optional forms available.

Any "total rewards statement" should include a generic reference to the Summary Plan Description(s).  Also, this is a great opportunity to remind participants about reviewing/updating any beneficiary elections.

[TPApril]

4 hours ago, Effen said:

Why doesn't it make sense to put the accrued benefit?  Is this a traditional plan, or a cash balance plan? 

It's a traditional pension plan. What doesnt make sense to me is that the payroll provider's uneditable template adds up the year's safe harbor contribution plus profit sharing plus the entry for pension plan.

That's why I wasn't considering lump sum as an option to begin with, but had contemplated a present value of the accrued benefit earned during the year, but even then, I don't care for that idea, particularly how to go with an appropriate interest rate.

There was no intent to do a projected benefit as this is left to the periodic pension plan statements (and we do hold salary increase projection at 0%).

Easiest approach might be total accrued benefit (payable at NRA), along with a separate statement explaining to ignore the sum of ER contributions + pension plan benefit. Also gotta deal with vested status.

[david rigby]

1 hour ago, TPApril said:

... the payroll provider's un-editable template ...

I would not use any such template.

1 hour ago, TPApril said:

Easiest approach might be total accrued benefit (payable at NRA), along with a separate statement explaining to ignore the sum of ER contributions + pension plan benefit. 

I would not use any comment instructing recipients to ignore part of the statement.

[truphao]

here is a practical suggestion (given the limitation of being "uneditable") - I would not have a problem using a PV of benefit accrual using a reasonably conservative interest rate assumption (5.50%?, may be 6.0%?) as long as there is a footnote somewhere disclosing "this is for illustration purposes only" and "the actual value will depend on future interest rates".

[TPApril]

1 hour ago, david rigby said:

I would not use any such template.

Alas - I agree, but my firm is not actually working on the project, we've just been asked an opinion on what to put in that field. I don't expect the company to change statement source.

They plan to show annual accrued benefit at NRA since this is an annual statement and they want to "look good".

1 hour ago, david rigby said:

I would not use any comment instructing recipients to ignore part of the statement.

Point well taken :).