5 Ways to Reduce the Costs of Administering your Pension Plan


Subtracting the cost of administering your company’s pension plan from your retirement assets can be a hard pill to swallow. From actuarial fees to legal fees to government mandated pension insurance premium increases, the costs can add up to subtract 3 – 5% of your retirement assets annually.

Whether you have an active or frozen pension plan, there are many opportunities to reduce plan costs.

Here are 5 ways to reduce your pension plan administration costs.

  1. Lump-sum Distribution Option. Add a permanent lump sum distribution option to your plan available to all active and terminated vested participants. You can also consider reducing, eliminating or removing ancillary benefits (i.e., death, disability) from the plan to further strengthen the funded status of the plan.

  2. Vested Terminee Cashouts. Another option is to offer immediate lump-sum cashouts to your terminated vested participants. Doing so can reduce per head administrative fees, Pension Benefit Guaranty Corporation (PBGC) premiums and eliminate cost increases when mandated mortality tables change to reflect gradual increases in life expectancies. Use our proprietary Lump-Sum Cashout Calculator to identify potential savings.

  3. Vendor Fees. Re-examine your vendor fee and service arrangements. Make sure they are market competitive and aligned with plan objectives, especially with your plan actuary. Research shows that many actuarial relationships have not gone out to bid in over ten years.

  4. Audit your Document and Benefits Administration. Compliance rules have changed over the years and it can be costly to correct errors, especially the longer they go unfounded. Conduct an internal audit of your plan documents and benefits administration to reduce legal risk and compliance correction costs. As the saying goes, an ounce of prevention is worth a pound of cure.
  1. Think Outside the Box. Examine alternative contribution strategies for your plan. In lieu of cash, consider more creative funding strategies such as borrowing, contributions of employer stock, and even employer property.

Even if you implement just one of these tactics, the cost savings could make a big impact to your company’s profitability and the funded status of your plan.  It’s worth investigating.

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