Overcome a De-Risking Pitfall

Before companies embark on a pension plan de-risking program, they need to locate “missing” plan participants.

If pension plan de-risking is a priority for your company in 2014, you should be aware of a potential pitfall. You may have researched your options and decided on the right program for your company under the assumption that communication channels will be reasonably clear. Yet what you don’t know about your past employees may have a substantial and costly impact on your efforts.

The quality of a company’s data on retirement plan participants may not seem like a responsibility of the finance department, but the issue presents a very real threat to de-risking strategies such as lump-sum distributions or annuity buyouts.

Caution: Confusion Ahead

Moreover, when a company is mailing checks to the wrong address, it is creating security risks for plan participants, including the threat of identity theft. And if it fails to seek out missing pension participants, a company may be exposing its plan to risk of fraud. For example, if a participant is deceased, a relative or friend might receive and cash benefit checks in the participant’s name. Recovery of the funds in this type of situation is extremely difficult, and the effort often involves hefty legal fees.

 

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