The Hidden Cost of Bad Data: A Case Study

Growing pension plan costs necessitated a change, but one company was not interested in taking the significant step of freezing or closing its plan. Instead, company leaders wanted to curb costs by changing the plan’s benefit formula while making sure not to undermine their mission to serve their employees with valued benefits. Unfortunately, data issues within the plan threatened to offset impending savings.

Background

A change in leadership in HR and finance led to the initial discussions of pension simplification. Sibson modeled various plan design modifications from a financial and employee impact perspective, resulting in a change from a final-average to a career-average formula since it balanced required cost savings with the least employee impact.

The Issues

While projections showed the change in formula would provide the necessary cost savings going forward, implementation unearthed some data-related issues that would need to be resolved as the plan redesign progressed:

  • The challenges of data collection and verification – There were five separate lines of business, each in separate locations and with their own record keeping and payroll systems. Many employee records were only on paper.
  • Recent loss of legacy employees – Longstanding HR employees with years of institutional knowledge had recently retired. Even for these experts, who knew the plans and data intimately, calculations were arduous and time consuming. 
  • Part-time employees – Tracking hours for part-time employees had historically been a challenge, which the new plan design would exacerbate due to a minimum hours requirement to obtain pension credit.

Sibson's Solution

It quickly became clear that data cleanup was the priority, and Sibson’s pension data experts outlined an agreed-upon plan. The Sibson team worked on-site to gather copies of all records and cross check each employee’s history. The data cleanup and new calculations were segmented into pre and post plan-design changes. The team set up tools to recognize legacy plan accruals and simplify post plan-design calculations. This meant HR staff could easily update information and produce accurate benefit calculations in a more efficient manner.

The Results

The client felt assured that the change in pension formula would help control costs going forward and the data cleanup was essential in order to achieve those costs savings. Their initial concern was how long it would take to recoup the cost of the additional work and see cost savings. The Sibson team analyzed the efficiencies generated from the use of the new tools and accurate data for calculations compared to the old approach and determined the client would recoup the fees within 2-3 years and generate significant savings per year after that.

The ease and speed of administration going forward was very well received by both the pension staff performing the calculations and the employees requesting the calculations – calculations that once took one to two weeks now could be produced the same-day.

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