As a pension sponsor, you play a vital role in safeguarding the financial security of the employees in your pension plan. From assessing funding options to regulatory compliance to employee communications, your day-to-day is likely consumed with keeping abreast of market shifts, monitoring compliance activities and carrying out routine plan administration activities.
One often overlooked aspect of pension plan administration, however, is maintaining broader data integrity. Clean data directly affects the accuracy and reliability of the information used to manage and administer the plan. Data integrity ensures that records pertaining to plan participants — including their earnings, employment history and entitlements — are accurate and up to date.
Data integrity is essential for calculating benefits correctly and preventing errors that could lead to financial discrepancies or legal liabilities. Sound data aids in compliance with regulatory requirements, such as those under the Employee Retirement Income Security Act (ERISA), by providing verifiable and consistent data for audits and reviews. Reliable and complete data may also minimize the impact of litigation. Additionally, data integrity fosters trust among plan participants, who rely on transparent and accurate communication regarding their benefits and financial security. By prioritizing data integrity, pension plan sponsors improve participant satisfaction, uphold their fiduciary responsibilities and protect the long-term viability of the pension plan.
Data cleanup in pension plans may not be glamorous, but ignoring it may be more costly than you realize. Some plan sponsors hesitate, citing day-to-day responsibilities impeding the ability to tackle data cleanup items or lack of a budget to do so, thinking it’s not worth the effort or thinking it’s someone else’s responsibility. These concerns, while understandable, are myths that we will debunk in this article so you can uncover why proactive data management is essential for your organization.
Contrary to popular belief, data cleanup projects don't just mitigate risks; they can be financially rewarding. Let’s look at three examples where data cleanup may actually yield an ROI for plan sponsors.
If participants fall through the cracks and do not receive their benefits at their normal retirement age, you may have expensive actuarial increases, additional plan funding, and threat of regulatory investigations and penalties from the Department of Labor (DOL) or IRS.
When participants pass away, timely identifying whether any remaining benefits are due to a beneficiary can pay large dividends. When you proactively take steps to identify plan recipients’ proper beneficiaries, especially those with no future death benefit owed to a beneficiary, you can potentially eliminate 10% to 20% — or more — of liability being carried for terminated vested employees with unknown beneficiaries and lower head count and therefore lower PBGC premiums, resulting in direct cost savings. What’s more, plan sponsors may have an opportunity to refile PBGC premiums and receive refunds for identifying this information after the fact.
Conducting a death search on contingent beneficiaries can significantly reduce plan obligations and cash funding requirements for pension plan sponsors because you may be conservatively holding and funding a liability for a “joint life” when a party has passed away.
Let’s say Joe Smith is retired with a 50% joint and survivor annuity, which means the plan obligation is valuing a benefit over two lifetimes. In actuality, his spouse, Jane Smith, died a few years ago, so there is no longer a joint life payment stream to pay or to value. Joe Smith should really be treated and valued like a single life annuity, which is a lower total liability to the plan. Lower liabilities improve cash funding, balance sheet position and PBGC variable rate premiums (for plans not at the cap).
Think skipping data cleanup saves money? Think again. The financial implications of ignoring data maintenance can be significant, and the longer you delay, the more expensive the following can become for each data record with issues:
Bulk cleanups are often more efficient than uncovering a single participant issue and trying to address it. If you weigh the immediate cost of a bulk cleanup against the per-occurrence costs noted above, total cost can be significantly lessened. You also need to factor in the escalation of soft costs, i.e., stopping other staff activities to address a bad data record, which could also result in significant hard costs depending on the severity of the data issue.
If immediate budget for a bulk remediation is a concern, it could be well worth the exercise to search for alternative funding sources before a real problem occurs:
There is rarely a “right time” to clean up your pension data, but the truth is, waiting only compounds issues. Artificial intelligence (such as Optimal Character Recognition, which translates text into characters) and innovative data solutions are game changers, allowing you to focus on strategic initiatives while artificial intelligence handles the heavy lifting.
Pension outsourcing specialists, such as WTW, have best-in-class tools and resources to take the stress and tedious work of data cleanup off your shoulders.
These include:
While it might seem like a third-party administrative issue, bad data eventually affects everyone. Compliance issues arising from faulty data can demand significant time, vendor and legal fees, and resources from your staff, especially when entities such as the DOL or IRS become involved. These regulatory bodies will expect you to have data controls and oversight in place.
For example, in 2021, the DOL published a “red flag” list that included the following areas of concern:
Starting your data cleanup can be overwhelming, but the right pension data experts can help. WTW can perform a foundational data diagnostic, akin to a biometric screen, which provides an overall evaluation of the plan’s “data health,” highlights risk areas and pinpoints where to begin.
The results of this diagnostic will uncover foundational data insights via a scorecard of more than 40 data checks along with a summary of interview findings, recommended priorities against plan objectives, ROI analysis and recommended actionable outcomes to enhance the management of your pension or 401(k) plan.
Dispelling myths around data cleanup reveals its true value; it’s a vital investment in your plan's stability and compliance. Proactive management leads to cost savings, risk reduction, transaction readiness and resource optimization.
