Communicating About Multiple Retirement Plans

Managing multiple retirement plans can get tricky—especially when different groups of employees are in different plans.

A plan sponsor may have multiple defined contribution (DC) plans due to mergers or acquisitions, it may have a qualified plan for all employees and a nonqualified plan for executive, or it may have a DC plan as well as a defined benefit (DB) plan. In the current retirement landscape, a plan sponsor who has both a DB and DC plan has likely closed or frozen the DB.

How can plan sponsors communicate about their retirement benefit programs so that participants understand why they are eligible for some benefits but not others?

“It definitely has its challenges,” says Brian Blach, vice president of CBIZ Retirement Plan Services, in San Jose, California, of maintaining multiple plans in a retirement benefit program. A key thing for plan sponsors is to make sure that the plan documents and summary plan descriptions (SPD) clearly define the different classes of employees eligible for each plan, he tells PLANSPONSOR. “The last thing we want is for the employee to think they’re going to get a benefit in a plan and not be eligible for that plan. So that outline is very critical.”

Plans Blach works with are typically set up to reward key employees. For example, he says, consider a law firm that wants to add another benefit for its partners. The main partner receives the maximum benefit, while associates in the firm receive a lower contribution. Some of those associates may wonder why other employees are getting more. “Once again that’s a communication thing that the employer has to make sure the employees understand,” particularly when it comes to individual classifications. “You have to be very clear up front.”

Matt Adamson, senior business leader of total rewards for Mastercard in Purchase, New York, says his company is now in the final stages of terminating its pension plan, but the plan was closed to new entrants in 2007, and the company placed all employees hired after July 1, 2007, into its 401(k). “We started having populations that had different retirement benefits—some people had the pension plan, some people didn’t,” Adamson explains. “We had two different matching structures on the 401(k) to accommodate the difference between who had pensions and who didn’t.”

Anyone in the pension plan receives a match of 100% on the first 6% in their salary in the 401(k), but anyone hired after July 1, 2007, gets a match of 125% on 6%. “If they asked about the difference, we said, ‘You don’t get a pension, but you do get a higher match on your 401(k) plan.’”

NEXT: Tips for communications.

Adamson tells PLANSPONSOR having multiple retirement plans is manageable, but participants might get confused by the presence of multiple plans.

“You have to have literally two types of education pieces and material,” Blach says. Using the law firm example, he says typically his firm holds two education meetings. “We will separate those two groups [that get different benefits]. In an education meeting with rank-and-file employees, the presenter needs to convey the value of the contribution,” he says.

Blach notes that a plan’s vendor or recordkeeper may send out enrollment kits to participants. However, when a client sponsors multiple plans, he says “We actually have the HR [human resources] people receive the kits and they hand them out.” His firm ensures that HR adds an introductory memo regarding the plan and addressing frequently asked questions.

For smaller plans, having the recordkeeper deliver the enrollment package to one location—instead of to each participant’s address—can be easier for them, and making those materials available in the work place affords employees time to review the information with an expert nearby, Blach adds.

When MasterCard began the DB plan termination process, Adamson found “a lot of [messaging] is dictated by the legal process—there are so many notices you have to go through and different filings.” The company tried to supplement the required notices as much as possible with really simple language about the different options. “We tried to make it as simple and as short as possible, and stay away from a lot of ‘legalese.’”