Exit the employer from the “employer pension plan”

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Transferring pension plan operations to a third party, known as “decoupling,” could provide employees with greater options, while reducing costs, risks and administrative burdens for employees, the American Academy of Actuaries in a recent issue. brief.

About a third of all private sector workers in the United States do not have access to an employer-sponsored retirement plan, the academy noted. These workers are often employed in small businesses that do not have the resources to make the plans work.

This is where decoupling comes in, according to the academy.

“The decoupling of plans from employers has the potential to increase coverage, better meet the needs of individuals, provide greater efficiency in the process of accumulating pension benefits, and offer options for distribution or payment. ‘other features that employers may not or may choose not to offer, “the briefing said.

Some companies may prefer to focus on their businesses rather than administering benefit programs, the actuaries said.

“In this environment, transferring the responsibility for the pension plan and the related responsibility to a third party can be a sound business and risk management approach,” the briefing said.

In a decoupled program, employers would not need to assume full fiduciary responsibility for the plan. Some of the administrative responsibilities could be transferred to third party companies. These companies could be subject to government oversight and ERISA rules, the actuaries wrote.

Using this model, an employer’s responsibility could be limited to choosing the third-party company and ensuring that employer and employee contributions are sent to the contractor.

However, the academy warned that if an employer has a limited role in the program, decoupled plans could confuse employees, which could result in limited participation.

Currently, US defined contribution plans show no signs of decoupling. While some companies give specific obligations to third party vendors, companies still retain ultimate responsibility as a fiduciary.

However, there are defined benefit plans that are decoupled, according to the brief. For example, the US multi-employer scheme, which covers union members who work for different companies, is decoupled. And some states, counties and municipalities have decoupled defined benefit plans.

Decoupled plans could offer several benefits to businesses, including lower administration costs and reduced fiduciary responsibility. These benefits could allow small employers to provide retirement benefits.

Actuaries have said that decoupled pension schemes have been used in other countries and they predicted that the trend of decoupling is likely to continue.

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