Best Practices for Defined Benefit Plan Administration

Defined Benefit Plans continue to offer meaningful retirement security, but require careful oversight, governance, and best practices to remain sustainable and compliant. 

In this article, we explore some of the common challenges we’ve seen plan sponsors face and provide best practices that we’ve seen implemented to deliver long-term value to plan participants.  

The Four Pillars of Retirement Plan Administration 

The four pillars of plan administration are the cornerstones that build an effective plan. They include data management, compliance and governance, communication, and cost controls. And though not mutually exclusive, many of them build upon one another. For example, the quality of a plan’s data directly impacts all other pillars.  

For this reason, we explore best practices in order of influence, starting with data and ending with cost controls and efficiency. 

1. Data Management Best Practices 

Many plan sponsors we’ve worked with have encountered common data errors that can impact decision-making, compliance, participant experience, and more. From the lack of audit trails to overlooked life events and security concerns, data management influences every pillar on our list.  

And though not quick, we have found implementing the following best practices can help build a foundation for more effective plan administration.  

• Conduct a full data inventory: Where does everything live? How is it used? Find gaps and ways to consolidate data early and often. Standardize data across systems and conduct regular housekeeping to validate critical fields. 

• Documentation and version control: Track changes in decisions and why they were made. Some changes may be due to legislation, and understanding the reason can help improve transparency and efficiency.  

• Routine testing: Frequently test systems for major events, like plan terminations and conversions.  

• Perform routine reconciliations: Don’t wait for an audit to reveal data issues. Complete reconciliations consistently, at least annually, but possibly monthly or quarterly.  

• Decommission redundant systems thoughtfully: If you retire an old system, do so thoughtfully. Consider how new and old data sources will influence one another.  

• Restrict and monitor access to sensitive data: Understand who has access to platforms and sources. Keep a running list of access and permissions, and do not add more than you need to.  

2. Compliance & Governance Best Practices 

From failure to track important dates to untimely participant communications, many common challenges can be resolved with organizational changes. We recommend the following best practices to help your organization stay up to date on regulatory changes and remain in compliance.  

• Maintain a formal compliance calendar: Your calendar should cover all internal checks and regulatory deadlines to ensure you have timely and accurate participant communications.  

• Implement and document fulfillment standards: Provide clear records of outgoing and incoming mail and establish a consistent process to track them within your system and participant records. Having a system like this in place and evidence that shows you’ve followed it can help in the case of an audit.  

• Conduct periodic plan governance reviews: Ensure policies, procedures, and plan documents are up to date. Check for accuracy and potential efficiencies. This does not need to be monthly or quarterly, but possibly yearly.  

• Maintain centralized plan records and communications: Provide reliable templates in a shared location to help team members respond to participant inquiries and audit requests. 

• Stay current on regulatory developments: Not everyone has access to an ERISA attorney, but there are retirement associations and organizations that provide regular publications on regulations. Following these resources can help your team stay up to date on regulations if you do not have access to an expert.  

3. Communications and Support Best Practices 

Effective plan communications engage the participant at the right time while remaining within compliance and legal requirements. With data and compliance processes in place, the following best practices can help you focus on building a positive experience for plan participants.  

• Provide multichannel communication options: Not all participants engage in the same way. Some use email, some use traditional mail, call in, or even prefer faxing. One of our preferred methods is to provide a secure online portal for participants. Whatever direction you take, try to maximize channels without reducing consistency or quality between them.  

• Provide internal training: Ensure that team members who interact with plan participants are thoroughly trained and knowledgeable about the plan. Establish clear service standards and turnaround times to maintain consistency.  

• Track and analyze participant responses: Record any themes in participant interactions to discover potential efficiencies and find opportunities to improve the participant experience. Maintain communication templates to streamline conversations and iterate as necessary. 

• Establish a governance calendar: Build a communications calendar to help ensure quality service and support regulatory requirements. 

4. Cost Controls and Efficiency Best Practices 

Outside of evaluating plan design, our last step is to explore opportunities for improved efficiency. The following are a few of the common cost-savings and efficiency opportunities we’ve seen among plan sponsors.  

• Conduct regular death audits: Plan sponsors often overlook this. If you can, complete a full audit to maintain data hygiene. This can save on ongoing administration costs and PBGC premiums. 

• Implement De-risking strategies: The most common strategies are lump-sum windows and annuity buyouts. In addition to removing people from the plan, these can reduce PBGC premiums.  

• Conduct regular participant status audits: Cross-check against payroll and records within the plan to locate gaps in reconciliation.  

• Implement annual EFT solicitations: Run records to sort between physical checks and EFT, then conduct a solicitation campaign to transfer members from paper checks to direct deposit. This can improve security and efficiency. 

Upgrade Your Plan Administration 

Today’s plan sponsors face evolving challenges in data management, communication, and cost control. At October Three, we understand the type of experience today’s sponsors and participants are looking for. From implementation to day-to-day management, we’ve developed a platform that makes administration easy. Click here to learn more about our plan administration solution and discover how we can help simplify admin.