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Cash-Balance Plan Conversion Communication Checklist

December 27, 2000
Related Topics: Benefit Design and Communication, Retirement/Pensions, Featured Article
Communicating the transition of current pension benefits to a cash-balance plan account requires several considerations. Below is a checklist that may help you determine what to say, how to say it, and why.

  • Explain why the plan is changing.
    Employees are leery of change, especially when it affects something as important and misunderstood as pension benefits.
  • Don’t oversell the plan.
    Conversion to a cash-balance plan will often result in two distinct audiences—winners and losers. Overselling the plan to the winners has the potential of fueling the discontent of the losers.
  • Educate, don’t just communicate.
    Consider taking a total retirement income approach to help pair the cash-balance plan with your 401(k) plan. Use modeling software and employee workshops as part of the communication plan.
  • Personalize your communications.
    Employees will pay attention when you show them specifically how the change affects them personally.
  • Explain the conversion process and calculation.
    If you don’t explain how you’ve converted your benefits, employees will accuse you of hiding something behind the numbers. For example, tell them about the percentages used for converting to lump-sum amounts and how that percentage is influenced by economic conditions.
  • Target your communications.
    There are several groups of employees; the same message won’t apply to younger employees with little service (who may not be very interested in a benefit they don’t have a lot of investment in) versus employees who fell just short of eligibility for grandfathering. One size definitely won’t fit all.
  • Recognize that benefit comparisons are inevitable.
    Help employees understand how the current pension benefit differs from the cash-balance plan—what good features of the current plan are kept and which ones are replaced by the cash-balance plan. Show employees how the benefits grow differently, where the gaps are that potentially can result in a reduction of benefits, and how the transition plan fills the gap. If you ignore the old plan, employees will jump to conclusions about it and fill in their own myths and beliefs about what they perceived as "lost" during the transition.
  • Communicate total retirement planning.
    Produce a combined cash-balance plan and 401(k) plan statement—the advantage of the cash-balance account is that it’s a lump-sum value just like the 401(k) plan account. Combining the two accounts as one investment portfolio will help employees in financial planning for their retirement.
  • Explain that benefits earned to the conversion date are guaranteed and insured.
    Employees often are not aware that their benefits are protected. In some environments, rumors will fly that the company is changing the pension plan to spend their pension money.

SOURCE: Employee Communications Practice, Global HR Solutions, PricewaterhouseCoopers, Chicago.

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