Client Stories | January 23, 2020

Managing Data for Defined Benefit Pension Plan Termination

Our journey consulting team works with plan sponsors to identify improvements that can help a plan save costs, be ready for major changes and better serve both administrators and participants. Optimum service from your plan starts with having an accurate data set. Read how in this client story.

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The issue

A regional health care organization preparing for a potential acquisition decided to terminate its pension plans in order to facilitate a smooth transition. Prior mergers had resulted in multiple legacy defined benefit plans within the organization.

In order to terminate the plans, the organization required accurate participant data to solicit pricing for purchasing annuity contracts. The organization reached out to a vendor for an initial estimate on the costs to terminate the plans.

The vendor returned with an unexpectedly high cost in its initial estimate. This prompted the organization to contact our team for a second opinion. We suspected that data issues likely existed within the plans stemming from the prior mergers and this was confirmed through an initial data assessment. The discovery phase quickly uncovered a number of specific data inconsistencies:

  • Current records for inactive participants did not correspond with past Form 5500 filings
  • There were noticeable differences in the records maintained by the record keeper, the administrator and the plans’ trustee
  • Differences among the various legacy data sources and systems unearthed data gaps and a lack of continuity

Our solution

The first task was to go through all of the on-site paper files and reconcile them with files provided by outside vendors as well as records preserved in off-site storage. Out of approximately a thousand participant records, we found more than 100 issues. While many of these were minor and could be resolved quickly, the most significant issues related to participants already in pay status.

A number of overpayments stretched back 10 years or more. We calculated the overpayments and in conjunction with plan counsel, worked with the organization to recoup them. Once we could measure the plans’ benefit liabilities accurately, the team solicited new bids for the annuity contracts.

The result

The client saved more than $1 million on the next vendor bid compared to the original termination estimate. In addition, approximately $200,000 in overpayments were recouped. The acquisition went through without any pension related issues as the buyer felt, with a high degree of comfort, there would be no future claims from participants on their benefits.

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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.

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