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Crawford & Co. was not the first company to offer former employees the option to convert their future monthly pension annuity benefit to a cash lump sum.
Indeed, dozens of corporations over the past couple of years have made such offers to reduce the size of their pension plans, and with that, their exposure to having to make big and unexpected contributions to them.
“We liked the idea of removing as much of the liabilities as possible to reduce volatility,” said Bonnie C. Sawdey, Crawford's vice president of human resources.
But what made Crawford's offer last year unusual was the high percentage of the nearly 1,100 eligible participants — those who had left the company but were not yet receiving an annuity and whose lump-sum benefit was $35,000 or less — who accepted it: about 56%. “We think that we had a phenomenal response rate,” Ms. Sawdey said.
Indeed, benefits experts say the acceptance rate of such offers typically runs between 30% and 40%. Yet, the high acceptance rate at Crawford was not a fluke but the result of a focused communications strategy, Ms. Sawdey said.
“We worked with Aon Hewitt to create a series of communications that included an announcement brochure, an election package and a series of follow-up reminders released before and during the lump-sum window. We also brought in additional staff to help answer participant questions and process the paperwork as elections came in,” Ms. Sawdey said.
Participants were given a toll-free number to call to get questions answered by Crawford staffers.”Participants wanted to understand what their options were. They asked: "Why is this being offered to me now? Is there any reason why I shouldn't be doing this? What are the tax consequences?' You name it. Anything you can think of,” Ms. Sawdey said.
In addition, participants were told they could roll over the cash lump sum into an individual retirement account, a move that would allow beneficiaries to defer taxes while continuing to earn investment income.
That message was heard: 53% of those accepting the lump sum rolled the money over to an IRA, Ms. Sawdey said.
For Crawford, the move of 607 participants out of its defined benefit plan reduced projected liabilities by $16.5 million. By making the pension plan smaller, Crawford reduced its exposure to investment and interest rate risk, as well as to mandatory and escalating premiums paid to the federal agency that guarantees pension benefits.
With a Pension Benefit Guaranty Corp. 2015 base annual premium rate of $57 per plan participant and an additional premium of $24 per $1,000 of plan underfunding, Crawford saved tens of thousands of dollars in PBGC premiums this year.
Inspired by the success of its 2014 offer, Crawford last month launched a new offer under which eligible pension plan participants — about 600 — whose future annuity benefit has a cash value of up to $50,000 will be able to convert to a cash lump sum, Ms. Sawdey said.
When employers move to high-deductible consumer-driven health care plans, one risk is that employees — because they are footing more of the cost — will delay preventive services that could spot medical problems early, before they develop into conditions that are far more expensive to treat.