PLANSPONSOR recently interviewed Culhane Meadows’ Dallas partner David Klimaszewski to discuss how reducing the costs of defined contribution (DC) retirement plans can help businesses keep them in financially challenging times.
Here are some excerpts from David’s interview:
PLAN SPONSORS’ BUSINESSES MIGHT HAVE suffered financial setbacks because of the COVID-19 pandemic. To cut costs, some might feel they have no other choice but to terminate their defined contribution (DC) retirement plan. However, there are other ways to reduce the cost of DC plan administration without terminating the plan.
David Klimaszewski, a partner at Culhane Meadows, says that, for most employers, the cost of running a plan is lower than contributions.
He warns that if the plan is a money purchase pension (MPP) plan, cutting back on contributions requires a plan amendment and a 45- to 60-day advance notice to participants, so it will take a few months for MPP plan sponsors to realize cost savings from reducing or suspending contributions.
Klimaszewski says freezing a plan so participants can no longer contribute could possibly cause a partial plan termination, and participants would have to be fully vested. It’s not clear when it becomes a partial termination, so he recommends that plan sponsors that take this route go ahead and make everyone fully vested.
While plan sponsors can pass certain plan fees to participants, Klimaszewski says that is not something he would recommend. He says plan sponsors are not worried about “nickels and dimes” anyway; they are more worried about big costs. So, benefits staff might try to determine how to free up costs from other benefits. Klimaszewski notes that the two most costly benefits are typically medical and retirement benefits.
For example, he says, plan sponsors could shift more medical costs to employees to free up money. They could also stop coverage for dependents or charge dependents for the full cost of coverage, although this might create an employee relations issue.
“It’s hard to generalize which solutions are best because each company and their benefit plans are different,” Klimaszewski says. “A clever idea for one company may be specific to that company and won’t work for others.”
The complete article can be found here.
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