How to manage a benefit plan for your workforce

How to manage a benefit plan for your workforce

Employers in Catholic organizations and dioceses are faced with a difficult balancing act of wanting to provide a safe and secure retirement benefit for employees without unduly taxing their budgets. Many employers may believe that continuing to offer a defined benefit plan is not feasible though at the same time understand the important foundation a defined benefit plan brings to the retirement security of their employees.”

Managing a benefit plan for your workforce can be challenging. There are a host of issues to consider from basic financial considerations to providing appropriate information and services. Determining what benefits are best for your employees and how best to service those benefits are important decisions.

For the Diocese of Joliet, a merger of their defined benefit pension plan with Christian Brothers Services’ (CBS) multiple employer plan was a welcome experience. When chief financial officer Michael Bava came to work for the Diocese in 2008, he recognized that the diocesan defined benefit pension plan was significantly underfunded. Taking into consideration that this was before the financial storm of 2008-2009 hit and that the plan was not small with approximately 3,000 active, term-vested and retired participants, the underfunding represented a financial problem for the Diocese.

Working with the Diocesan Finance Council, the Diocese put a plan in place to address the problems and retain the plan because it was determined that this form of retirement benefit was in the best interest of the diocesan employees. As such, benefit formulas were modified, certain plan provisions were eliminated and contribution levels were increased to begin to address the underfunding. Additionally, the finance council sought a longer-term solution that would mitigate the chance of similar problems occurring again.

While the changes made by the Diocese stopped the bleeding, the Diocese wanted a better long-term solution. Being familiar with what the CBS plan had to offer, Bava began working with CBS on options for the future. As the diocesan plan metrics were slowly improving, Bava began to explore merger opportunities
with the CBS plan.

“There were very few people at the Diocese that were adept at managing a defined benefit pension plan. And importantly, there were not resources available to enhance this capability. Recognizing the capability of CBS, we began to make plans to merge the diocesan plan with the CB plan.”

Christian Brothers Retirement Planning Services administers the Christian Brothers Employee Retirement Plan (CBERP), a defined benefit plan that covers lay employees who work for Catholic organizations or dioceses. The CBERP provides a traditional form of retirement benefit, also known as a defined benefit pension plan. The Plan is funded entirely by the participating employers, with benefits based on a formula that is applied to an employee’s career covered compensation to provide a monthly benefit payable for life at retirement.

Employers in Catholic organizations and dioceses are faced with a difficult balancing act of wanting to provide a safe and secure retirement benefit for employees without unduly taxing their budgets. Many employers may believe that continuing to offer a defined benefit plan is not feasible though at the same time understand the important foundation a defined benefit plan brings to the retirement security of their employees. CBS believes that finding a solution can be even more difficult because employers have multiple, sometimes confusing retirement funding options from which to choose.

Jim Ceplecha, managing director,  Christian Brothers Retirement Planning Services, explains that often organizations find that offering a defined benefit retirement plan for their employees becomes too costly to maintain and sometimes even more costly to terminate.

“CBERP, with our economies of scale, can provide a plan that is more cost-effective to an employer because we are so much larger working as a whole,” said Ceplecha. “A typical diocesan defined benefit plan may have about $50 to $100 million in assets; we are at $1.6 billion; so we are simply more cost-efficient based on the size of the plan.”

Ceplecha explains that “administrative and investment expenses are relatively more cost-efficient due to our size. Since the Plan is covering more than 30,000 participants the liabilities are spread over a larger group.”

The Diocese of Joliet was attracted to various components of the Plan and the much larger asset base and number of participants. Additionally, the CBS systems were much more advanced and capable of providing an enhanced level of service for diocesan employees. A merger with CBS also would make it possible to continue to offer a defined benefit plan as opposed to switching to a defined contribution plan.

After merging into the CBERP, Bava said the improvements were especially apparent in systems and reports. CBS provides multiple data points that map out scenarios for different stages of retirement, offering additional detail that allows users to make a more informed decision. This feature simply did not exist under the old plan due to lack of systems, staff and time.

“The merger turned out to be easier than I thought it would be, though there are a lot of reasons for this,” said Bava. “Both sides worked hard to make it work. This made the likelihood of success so much greater.”

Ceplecha said the first step in any merger involves CBS conducting a complete analysis of what an organization currently has in place to see if it makes sense for their organization.

“We are in the business of understanding what they need. This is what we do every day— it’s our job to know,” said Ceplecha. “We then give on-site help to communicate any changes and set up meetings with employees to walk them through the process—no one likes change, we try to make it easier.”

Attention to such matters is what hits home with organizations like the Diocese of Joliet.

“The transfer of the plan involved significant assets and most important, necessary communications with our past and present employees,” said Bava, “so it was critical that the decision be properly executed.”

In his previous role as president of a privately held company, Bava noted that he might not have opted to retain the defined benefit plan and likely would have sought alternative solutions including offering a defined contribution plan as a replacement for the pension plan. But, he said that working in the Catholic Church community is simply different and that it becomes necessary to take into account the much smaller salaries of Catholic employees and their inability to contribute to a fund on their own.

While 401(k) or 403(b) types of plans are an important element in a worker’s retirement portfolio, these plans alone may not provide the income security to last through the years that many retirees will need. CBS has found these plans also put much of the burden of funding and investment selection directly on employees who may not be equipped to handle these decisions and the related risks.

Now part of the CBS plan since 2013, the Diocese of Joliet currently has about 1,500 active employees, with nearly 600 vested and more than 1,000 who receive retirement benefits through CBS.

“Our goal was to do the best we could to ensure our employees would have retirement security after working for so many years,” said Bava. “And we believed that the defined benefit option was the best alternative for our devoted employees. While the pensions are modest, when combined with Social Security and personal savings, they will provide security for employees during their retirement years.”

Ceplecha says organizations can find themselves in situations in which keeping up with a retirement plan becomes cost-prohibitive.

“This is when they can come to us—typically we are able to give them options they haven’t heard before,” said Ceplecha. “Ultimately, they want to continue to provide for their employees. We are able to help them maintain a defined benefit plan that they didn’t think possible. We like to be able to turn things around and it becomes a definite win for them and their employees.”

Employers who join the CBERP receive numerous benefits and the flexibility to match their contributions to their budgets. Employers are offered six contribution levels, allowing them to select the one that best suits their retirement budget, and employees receive a solid foundation for retirement that is not market  dependent, allowing them to plan for retirement income with greater accuracy and security.

In addition, CBS offers 403(b) and 401(k) Retirement Savings plans. Defined contribution plans, commonly known as 401(k) or 403(b) plans have become the most common retirement plans offered to employees. These plans can be relatively easy to manage for employers and easy to fund for employees who choose to enroll. But many plans don’t offer the ease of a hands-off approach that some employers and employees would like—CBS offers this turnkey approach geared for small to midsize organizations.

All of the administration is provided under the Plan by CBS in partnership with Vanguard. The employer is not burdened with all of the tasks involved in  administering a defined contribution plan. Partnering with CBS allows employers to offer the retirement options their employees need without taking on the burden of all of the day-to-day administrative activities.

In addition to the option of the turnkey approach, larger organizations, with 1,000 or more employees, may prefer a more hands-on approach to their employee retirement plans, including the ability to mix and match investment options as done in an open architecture approach. CBRPS offers the best of both worlds by offering employers the option of a defined benefit plan, a defined contribution plan or a combination of both plans.

For more retirement resources, check out https://www.cbservices.org/retirement_resources_tools.php.

For more information, contact Retirement Planning Services at 800.807.0700 or jim.ceplecha@cbservices.org.

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