Case Study: Delivering relief and expertise for a client administering small, frozen pension plans

Background

A long-time client approached a Milliman actuarial consultant to see if Milliman could provide additional administrative services for the defined benefit (DB) pension plans the company sponsored. The Milliman actuarial team had provided benefit calculation support for many years, but employees at the company handled all other aspects of plan administration, e.g., responding to participant inquires, creating retirement election paperwork, qualifying participant elections, and administering benefit distributions.

The client was also responsible for tracking the participant populations for administrative compliance tasks during the year, such as sending the annual funding notice or preparing the population for the Form 8955-SSA (Annual Registration of Separated Participants with Vested Benefits).

The client sponsored two separate pension plans: one for union employees and another for administrative staff. Both plans had been frozen for many years and had a combined population of slightly more than 350 participants. The company intended to terminate the plans within a few years.

The client’s organization was also in transition. The primary client contact, who reached out to the Milliman consultant, was new to the company. Her predecessor had managed the pension plans for years and had recently retired. The new contact was highly competent, but she had limited knowledge of pension plans and no experience with pension plan administration. She needed to gain the needed expertise or find an alternative solution.

Challenge

Ensuing conversations between the client and the Milliman consultant explored the potential for an alternative solution. Those discussions brought focus to the following needs:

Solution

The actuarial consultant reached out to his Milliman colleagues who specialize in DB pension administration. Based on the needs of the client and the size of the plans involved, Milliman proposed a customized service model with the following features:

• Web-based data platform keeps it simple. Because both plans had been frozen for years, there was minimal need for future data updates to administer the plan. Thus, Milliman created a simple, web-based data platform to hold basic participant data and record activity that both the Milliman team and the client’s staff could access.
• A manual approach for low-volume activity. Given that the plan populations were small, the low volume of benefit calculation and estimate requests could be handled with a less automated approach than used in other solutions. Additionally, the Milliman team would work directly in the trust custodian’s web-based interface to administer benefit distributions, similar to how the client’s staff had handled this responsibility themselves. Again, the low volume of activity made this manual approach feasible.
• Custom solution for participant inquiries. Lastly, the Milliman administrative team developed a custom solution to manage participant inquiries. Milliman set up a dedicated email address and an unattended phone number for recording messages to allow participants to ask questions or request pension paperwork. A Milliman pension professional would provide a prompt response to participant inquiries in a manner that was not much different from the client’s current process.

Outcome

The client decided the proposed solution was the proper fit for its goals and budget and eagerly agreed to move forward with the new service model. Over the next few months, Milliman’s administrative team assembled the data, tools, processes, and structures necessary to transition nearly all of the plan administration duties from the client’s staff to Milliman.

During the implementation, Milliman’s expertise in DB plan administration brought additional value to the client. The process required the review of most elements of each plan’s prior administrative practices. One meaningful example involved the paperwork provided to participants for making retirement elections. Milliman was able to simplify and update the paperwork, making it easier for participants to understand, while ensuring the forms were in compliance with regulatory requirements.

Milliman also reviewed the plan documents to confirm operational compliance with plan provisions. A thorough review of each plan’s administrative practices by Milliman experts gave the client confidence the plans would be ready for the extra scrutiny they would encounter during the termination process a few years down the road.

Milliman succeeded in relieving the client’s staff of the day-to-day administration of its pension plans. The dedicated email address and phone number allowed the client to guide participants directly to Milliman’s administration team, which took responsibility from that point. Milliman now handles most activities with minimal impact on the client’s staff—answering participant questions, preparing calculations and paperwork, reviewing retirement applications, and administering benefit distributions. The Milliman team also prepares the data for the annual actuarial valuation, maintains participant addresses, searches for missing participants, coordinates the mailing of the annual funding notice, and prepares the data for the annual Form 8955-SSA filing.

In the end, the client is extremely satisfied with the solution Milliman created for its plans. The client is able to relieve its staff of the burdens of daily plan administration and obtain access to the expertise they desire. Each of these goals was accomplished at a price point that fit the size of the client’s need and in alignment with its long-term goal of terminating the plans.