Archived Insight | June 9, 2020

Pension Plan Sponsors: Use the Pandemic to Prepare

Balancing the need to combat short-term fires — such as during the COVID-19 crisis — without inadvertently creating adverse longer-term consequences is always a challenge for many management areas of focus, including the stewardship of pension plans. Under the adage of “first, do no harm,” it’s important not to lose sight of the long-term strategies when addressing short-term crisis-fighting tactics. 

Furthermore, it’s important to identify opportunities from the current crisis that could pay dividends to the plan well into the future.

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Not all potential actions will meet your goals

Some questions you might ask about your plan and whether there are actions that could be taken include:

  • How has the plan’s funded status changed in the first half of 2020? Plans with significant drops in funded status may be subject to future benefit restrictions.
  • What are the benefits or implications of transferring former employees out of the pension plan? Reducing the size of your plan may help the overall risk profile.
  • Is it time to re-look at the plan’s investment allocation? There are strategies that can maximize market activity coming out of a recession while protecting against future downturns.
  • Should I weigh the cost/benefit of a temporary shutdown of accruals for active employees? Cash savings may not be felt as quickly as needed.
  • Can I utilize the pension plan to mitigate severance costs for newly laid off employees? May provide financial security to affected employees without hurting your organization’s immediate cash needs.
  • How far off is the end game for the plan overall? Assess how the answer has changed during the COVID crisis, and what can be done to put the plan back on track.

Under any of these scenarios, it is important to analyze both the short and long-term implications to help you to make the best decisions for your plan and for your organization, and to allow you to efficiently administer any changes you ultimately choose to implement. 

Given the challenges almost all organizations are facing, the pension plan should not be adding to your financial concerns. There are steps that can be taken now to ease the burden and to diminish the stress over the unpredictability of the future.

How can we help?

Our consulting professionals have the experience, skills, tools and resources to predict the short-term and long-term ramifications each potential action will have on your plan. We can work with you to help you determine which actions will have the impact that best matches your immediate needs and serves your long-term goals.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.