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Carpe Opportunitatem: Think Beyond PPA’06-Required
Participant Communications
By Lydia Moore
Sibson Consulting, a Division of Segal, New York, NY
The Pension Protection Act of 2006 (PPA ’06) requires
employers that sponsor defined benefit (DB) retirement plans to
provide benefit statements at least once every three years to vested
employees. Employers are also required by PPA ’06 to give
quarterly or annual individual benefit statements to employees
participating in defined contribution (DC) plans. (Details about the
new requirements are in the text box below.) This creates an
opportunity to build employee appreciation and enhance retention by
going beyond simply complying with these new requirements. That is,
while the law speaks of retirement benefit disclosure, employers may
want to seize this opportunity to not only say, “Here are the
facts,” but also, “Here's how you should be thinking about
them.”
Why Seize the Opportunity to Communicate Beyond
Compliance?
Seizing the opportunity to expand the scope of the required
retirement benefit statements can help achieve two important human
resources objectives:
•
Encourage Retirement Planning and Savings. Retirement is
a hot topic these days. Employees are being bombarded with messages in
the press about the long-term viability of Social Security and the
need to plan and save appropriately for their retirement. They have
concerns and many questions. Through the pension statement, employers
can help them find answers and highlight their retirement programs at
the same time.
•
Enhance Understanding of the Employee Value Proposition
(EVP)1to Improve
Retention of Key Employees. The competition for talent is
heating up. According to the 2006 U.S. Job Retention study
conducted by the Society for Human Resource Management and
CareerJournal.com, “approximately three-fourths of currently
employed respondents are either actively or passively job
searching.”2 Keeping
valued, experienced employees is important to the bottom line because
studies show that companies with low turnover have better
profitability. Moreover, losing one talented key performer can cost a
multiple of his/her annual salary to replace when taking into account
the costs of recruiting, training and waiting for the new employee to
get up to speed. It is important to educate employees about the total
value of their company-sponsored benefit programs and rewards, in
addition to their salary, before they are tempted by perceived
“greener” pastures.
How Can Personalized Communications Help?
An effective communication effort will improve employees'
understanding, appreciation and engagement. There is a spectrum of
increasingly robust approaches that go beyond simply complying with
PPA ’06 requirements:
•
Retirement Planning Statements. Expanding pension
benefit statements to include projected benefits from the DB plan
coupled with estimated benefits from DC plans and Social Security
gives employees a snapshot of what their retirement income may look
like. The information in this umbrella piece that ties it all together
may motivate them to learn more about planning for retirement
(including identifying specific needs and setting realistic goals) and
encourage them to save more.
•
Total Compensation Statements. These statements
highlight the specific investment an organization makes on behalf of
the employee through all company-sponsored benefits and programs. In
many cases, the cost of company-sponsored benefit programs can exceed
$1 for every $3 paid in direct compensation, but employees will not
know about the value of these programs unless they are told.
•
Total Rewards/EVP Statements. In fact, to really drive
employee appreciation and comprehension, employers can provide a
statement that builds on retirement planning and total compensation to
include all aspects of employment that are meaningful to employees
(e.g., work content, career development and affiliation, as well as
direct and indirect compensation). By reinforcing the total rewards
that an organization offers, these statements can help employers
achieve or maintain their position as an employer of
choice.
The New Requirements for Retirement Benefit
Statements
PPA ’06 expanded the ERISA benefit statement rules for
covered DB and DC plans, effective January 1, 2007, for many plans.
Under PPA ’06, plan sponsors must provide individual benefit
statements automatically to participants and beneficiaries at least:
• Quarterly
(for DC plans that allow participant-directed investments);
• Annually
(for DC plans that do not allow participant-directed investments);
or
• Every
three years (for all DB plans, to active, vested participants only)
starting with the 2009 plan year, or, alternatively, an annual notice,
starting in 2007, informing them that they can receive an individual
benefit statement on request.
The statements must be provided within 45 days after the end of the
relevant period. In addition, as was generally the case before PPA
’06, any participant can also request and receive a benefit
statement for either DB or DC plans once each year.
The Department of Labor (DOL) recently issued interim guidance for
the new individual benefit statement rules. Until it issues
regulations, plan sponsors can follow a good faith interpretation of
the law. Following the interim DOL guidance will be treated as
complying with the law.
As with all issues involving the interpretation or application of
laws and regulations, plan sponsors should rely on their attorneys for
authoritative advice on the interpretation and application of PPA
’06.
1
The EVP is Sibson Consulting's term, which encompasses all aspects of employment that are meaningful to employees, including work content, career development and affiliation, as well as direct and indirect compensation.
2
Link to the study: http://www.shrm.org/hrresources/surveys_published/2006%20U.S.%20Job%20Retention%20Poll%20Findings.pdf
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