What may be done at any time will be done at no time.
– Scottish Proverb
Plan sponsors utilizing an unbundled service arrangement may be unintentional procrastinators without even knowing it. Let me explain.
Detailed employment data is crucial to correctly determining participant retirement benefits. In fact, an employee’s entire employment history may be needed to determine their benefits. Without a professional service provider helping plan sponsors manage their participant data, it may not be current or easily accessible. In my experience, plan sponsors in an unbundled environment commonly wait until the time of a participant’s retirement to collect this information. I’ve witnessed many plan sponsors struggle trying to gather this data at the time the calculation is needed.
Data issues can be caused by a few things:
- Payroll system changes. Most companies go through several systems over time. Some employee data can get “lost” in the transition of payroll changes.
- Shoe box storage. Believer or not, some plan sponsors store historical data in “shoe boxes” or other paper methods. Gathering this information is difficult and often involves sending Harriet to the salt mine.
- Complex and dated information. The HR staff responsible for the DB plan may not have the knowledge necessary to interpret the plan provisions and payroll information which, is often times, decades old.
- Legacy features and grandfathered benefits. DB plans often have legacy features that include grandfathered benefits. It is extremely difficult to recreate these benefits at a later point in time.
Data Warehouse – Bye, bye procrastination!
Alternatively, a bundled service provider can help plan sponsors by collecting and storing data using a sophisticated data warehouse system designed specifically for DB plans. That way, the employee data and retirement benefits are stored in real-time (bye, bye procrastination!).
As part of a transition from an unbundled arrangement, a bundled service provider can help the plan sponsor:
- Determine the employee data that is needed and
- Help audit the historical data for accuracy and completeness
As payroll information is fed to the service provider on an ongoing basis, the service provider should maintain a data warehouse that is always current and complete.
Other advantages to a data warehouse include:
- Data is continuously backed up and protected (disaster recover)
- Data is available and in real time (website, call center, etc.)
- Calculations take less time
- Calculations are typically included in the overall price (not charged a la cart)
One final thought on the benefits of a data warehouse. For those plan sponsors that are interested in terminating their DB plan, accurate and current participant data is a must. The sooner you take the step to employ an active data management strategy, including the use of a data warehouse, the better prepared you will be when you want to proceed with plan termination. Don’t let the quality of your participant data limit your ability to act to rapidly changing market conditions. Don’t be an unintentional procrastinator!
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.