Pension Developments and Challenges

June 27, 2022
Man at a desk using his phone

Pension administrators face more challenges than ever. Over the past several years, legislators have introduced reforms to protect consumers and ensure the integrity of pension funds. Multiple types of pension plans (e.g., traditional defined-benefit plans and newer defined-contribution plans) have further added to the complexities associated with pension administration.

Multiple pension plan challenges

For example, while defined-benefit plans determine retirement payouts based on an individual’s salary history, tenure and other factors, defined-contribution plans enable employees to select amounts to contribute to their retirement accounts for potential matching employer funds. This results in individual account amounts changing based on contribution levels and investment returns and various retirement plan options selected by the employee – all adding new challenges to pension administration.

Heightened Need for Financial Education

Regulatory reforms, coupled with developments relating to the different types of pension plans, have also created a greater need for plan participants to be more educated in order to make more informed decisions. One way some states are combating the financial literacy problem is to permit  pension plans to automatically enroll employees and provide defaults that programmatically set contributions at a particular level which would permit the employees to receive the full employer match. This is being done in Michigan with good success.

Growing Demand for Online Support

Another change underway, especially given the growth of the younger workforce generations and their digital orientation, is the increasing demand for pension programs to provide online access to account information. From mobile apps to new retirement system engagement channels, plan members now have options beyond telephone calls and voice response systems to gain information regarding their retirement plans.

New Developments Point to Heightened Need for Third Party Pension Administrators

These market changes alone reflect why many plan sponsors are increasingly turning to third party administrators (TPAs) to manage their pensions. TPAs are staffed by experienced employee benefit professionals in various roles ranging from finance and eligibility processing team members to payroll auditors and pension analysts. They have deep knowledge regarding the latest regulations, as well as a specific understanding of different plan sponsors’ needs such as those of the multi-employer Taft Hartley plan. Additionally, they have access to the latest pension administration technology to streamline processes, minimize errors and ensure plan compliance. They are fully-knowledgeable and skilled in all aspects of pension administration, from maintaining participants’ records of benefits, eligibility, and payment history, to processing pension applications in compliance with fund benefit rules, assisting in government filings, managing all financial administration (i.e., billing, collection, reconciliation of contributions or withdrawals, etc.), managing appeals, and handling member inquiries.

Currently, there is a bill pending in Congress that could introduce a significant overhaul of retirement in America. The “Securing a Strong Retirement Act of 2022” (i.e., Secure 2.0 bill) passed by the House on March 29, 2022 with broad bipartisan support, and is now with the Senate. Supporters of the legislation believe it will address a significant problem in America, which is that many American workers are not financially prepared for retirement.

This legislation would introduce automatic enrollment of workers in retirement plans as a mandatory requirement for any business with over 11 employees. The proposed legislation would have employees initially contributing a minimum of 3% of their wages into their employer retirement plan, with an additional 1% contribution each year thereafter, initially capping at 10%. Employees would be permitted to opt out of contributions while existing retirement plans would be grandfathered in.

Pension administrators should be prepared for the changing landscape.