Who’s in charge of pensions?

With the finance department’s interest in the pension portfolio at an all-time high, it’s a chance for HR to talk strategy

With all the difficulty employers are having funding pension plans, it’s no wonder chief financial officers are getting more involved in plan design.

High on the list of benefit programs to be redesigned, or eliminated entirely, are defined benefit pension plans and post-retirement health programs. In the past, the cost of these programs did not receive as much scrutiny from the finance department, and HR professionals were often left to manage them as they saw fit. However, with an ever increasing awareness of both the cost of these programs, as well as the volatility in costs, CFOs have stepped forward to put controls in place.

For employees, there is a shift away from “entitlement-based” programs towards programs that place a greater onus on the employee to take responsibilities as well as risks. This shift is best exemplified by the movement towards defined contribution pension plans. While employers still retain responsibility for the effective administration of the plan (including the selection of appropriate investments offered), employees are now provided with the responsibility to make investment choices and bear the risk and rewards of their decisions.

So where does this leave HR? In recent years, there has been a cry from HR professionals wanting a greater involvement in strategic work. Often, HR laments the lack of opportunity to work with company executives in a strategic capacity, instead finding their role as effectively a transactional guru. HR professionals seeking a greater role can consider the following list of opportunities.

HR’s input on plan design

The CFO is usually clear about what a company can afford to pay for a benefit program. What is often less clear to a CFO is how a program will help attract, motivate and retain employees. HR should step forward here to reinforce the importance of linking a benefit program to the objective of a capable and satisfied workforce. Every workforce is different, and the best HR practitioners find a way to develop programs that blend with the overall talent strategy of the organization.

If financial concerns dictate that change is necessary, then HR must demand an involvement in designing new programs. While budget constraints may not give HR the ability to deliver the ideal program, HR should have a loud voice in defining which benefits should be retained and those that can be sacrificed. In seeking this role, HR professionals must be prepared to demonstrate that they have the expertise to tackle the complexity of plan redesigns, including knowledge of employee expectations, competitive practices and applicable employment law.

The communication portfolio

Defined benefit programs (pension or health) can be complex. A lack of appreciation of a program by employees is often a direct result of a lack of understanding. HR must commit to not only offering the “minimum disclosure” provided by legislation, but to offer effective communication of a program, its features and most importantly its benefits.

Communication can be managed over many media. A standard 8.5 x 11 sheet of black and white print or the ubiquitous e-mail “notice” are likely to get lost in the deluge of paper and e-mail that employees see each day. Produce a regular HR bulletin that can stand out and make a real impact in the minds of employees.

HR will have to look at the costs of production for any communication program, but cost alone should not be used as an excuse to not make an effort. This is any area where HR’s creativity can shine.

During a benefit program redesign, communication is critical. Change will make many employees uncomfortable and some will resist. Effective communication can help pave the way to positive employee relations. Even when an outright cut in a benefit program is occurring, proper communication goes a long way in reducing fear, anxiety and rumours.

Facing the finance department

A CFO is usually pleased when non-financial professionals from HR are able to speak their language. A battle between a CFO and an HR executive on what is affordable to a company usually ends with the CFO making the final decision. Instead of dispute and debate, HR needs to understand the company’s financial constraints as well as the costs of the current benefit programs and the alternatives available for consideration. For defined benefit pension plans and post-retirement health programs, this means reading the actuarial report and understanding the implications for the future costs of these programs.

Armed with an expertise in plan design as well as a full understanding of the cost implications, HR is able to constructively contribute to an organization’s benefit plan strategy. Once a strategy is agreed upon, HR should play a central role in clearly communicating both the strategy and the resulting programs to employees. This approach brings HR in as a partner with finance, rather than putting the two at odds trying to fight for turf.

Joe Nunes is a pension consultant and actuary with Actuarial Solutions Inc. in Windsor, Ont. He can be reached at [email protected].

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