Bundling has benefits. If you’ve followed my last few posts, you’ve seen how bundling a defined benefit (DB) plan with one service provider can mean cost and time savings, increased oversight and better overall service for the plan sponsor. Another advantage of bundling is eliminating a significant risk most plan sponsors may not even be aware of – the “Harriet factor”.
Let me elaborate. Many organizations operating in an unbundled environment have a key person within their organization dedicated to the DB plan. Let’s call her Harriet. She’s been around for 30 years and is the one person that everyone goes to with questions on the plan. She knows the history of all the mergers and acquisitions of the plan, which participants have grandfathered benefits, where to go to get participant data (I’ve seen clients that have paper records in salt mines or stored in freezers due to water damage) and how to calculate the participant benefits. Harriet also handles all plan participant and retiree inquiries.
So what’s the problem? Well, Harriet is getting ready to retire. And when she does, all the knowledge that she’s accumulated goes with her. Who will step in and replace Harriet? Most plan sponsors would be hard pressed to find anyone to take over this responsibility. Continued reliance on Harriet can potentially create significant plan fiduciary risk.
So what can a plan sponsor do to mitigate this key person risk? One of the most effective ways is to hire a service provider that can offer a professional administrative services package. This package typically includes the following items:
- Plan document provision repository – including a system to track and store all plan provisions, including complex M&A history and grandfathered benefits
- Plan consulting and legal resources to help the plan sponsor interpret difficult plan provisions
- Participant data warehouse – which allows a plan sponsor to get out of the participant data management business.
- Participant call center
- Participant website
Another advantage to addressing the Harriet factor is reducing confidentiality concerns among participants. Participants can work directly with the service provider rather than approaching their colleague Harriet to determine retirement plan options.
The topic of a participant data warehouse deserves additional discussion, so I’ll be focusing on it in my next blog. It’s another important way for plan sponsors to help mitigate their risk associated with their DB plan. There is a wide range of data management capabilities among DB service providers so it’s important to understand the provider’s capabilities. Some do data management very well while others have limited systems to support this. Stay tuned for my discussion on how an active data management strategy is important to the successful management of a DB plan.
In addition to blogging here, I also tweet regularly about DB topics of interest. Click to follow me on Twitter- @scottruba.
Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.