A New Year’s Wish: Why Not Try More Beneficial Benefit Planning?

A New Year’s Wish: Why Not Try More Beneficial Benefit Planning?

As the mountain of new-year, new-law, alerts and warnings mounts, wouldn’t it be nice if sponsors and their advisors paid a little more attention to the beneficial purposes of a benefit plan?

Of course, lawyers and actuaries cannot be expected to ignore the potential for problem-discovering, alert-related, problem-solving, business-generating, fee-generating professional work growing out of the new law, new FASB rules, new SEC rules, new regulations, and the like. The profit opportunities are too great to ignore.

But wouldn’t it be nice if we also helped our clients to remember the serious needs of their employees and the benefit-planning opportunities that are the real reason why these plans developed in the first place?

What, exactly, does that mean?

How about some of these now-controversial ideas: Maybe considering how NOT to terminate, or NOT to freeze? Or at least how NOT to completely freeze a defined benefit plan? Or how about even perhaps doing the unthinkable and establishing new (but modest) DB plans, while diminishing the cash-flow risks (e.g., using more conservative actuarial assumptions, methods, and benefit definitions, and eschewing unpredictable contingent event benefits, limiting new unfunded past service credits)? After all, the "normal cost" of DB plans is not often the land-mine or booby-trap – it’s the present value of unfunded accrued liability where the risk lies, and, with care, that risk can be diminished or even avoided.

And how about combining modest DB plans with 401(k) supplements (many proponents’ original idea behind 401(k) plans in the first place)?

And how about putting some new restraints on DC plan cashouts, so that lower-paid employees (those who need pensions the most) are not the ones with the most cashouts? After all, 401(k) plans were invented to be retirement plans, not mere receptacles for short-term savings.

And so on.

This isn’t rocket science. It’s a question of role definition(s). The temptation to view plan sponsorship and "settlor functions" as a cash opportunity for employers (stockholders) may be real and substantial. But in a world in which outside advisers have taken on such a large role, perhaps we professional should remember, at least, the advice of a famous lawyer and outside general counsel who once wrote that he considered one of the primary responsibilities of outside counsel to be this: on an appropriate occasion, when asked to opine on a proposal that would be lawful but perhaps completely shortsighted, to look your client in the eye and say (what inside lawyers might not feel free to say): "You are damned fools and should stop." (Sol Linowitz, The Betrayed Profession, p. 4 (New York, Charles Scribner’s Sons, 1994), p. 4, quoting lawyer, cabinet member, diplomat, and Nobel Prize winner Elihu Root, ).

It takes some guts for a professional to say it, and it takes some character for a client to pay heed to it, but what a New Year that would be.

Comments

[K MacAfee]

A great post. The consulting profession in particular has done a disservice to plan participants by not pushing back on clients more to consider alternatives to freezing DB plans.

[Marc LeBlanc]

What a refreshing piece. It made me think of a trend in benefit offices that I find disheartening - the increasing lawyerization of the fund office. We must be careful of what we say or how we say it, of trying to be helpful. "How will PPA affect my benefits?" we are asked. There's a helpful answer and there is counsel's suggested answer. As Tom Nyhan says counsel's answer is perfectly correct but useless to the participant.