BEST PRACTICES: Hybrid Retirement Plan Design Flashcards
Governments that choose to provide a hybrid retirement benefit plan should address key points related to plan design, funding policies, board governance, plan conversion, and participant education.
What is a hybrid retirement plan?
A hybrid retirement plan offers a combination of defined benefit (DB) and defined contribution (DC) plan features and can be primary, optional, or supplemental.
What is the key difference between defined contribution plans and hybrid plans?
Defined contribution plans establish actual funded accounts for each participant, while hybrid plans establish notional accounts.
What are the most common hybrid account-balance plans?
The most common hybrid account-balance plans are cash balance plans and pension equity plans.
What features characterize cash balance plans?
In cash balance plans, participant accounts are credited with a pay credit and an investment credit, and can receive their balances as an annuity or lump sum.
What features characterize pension equity plans?
Pension equity plans calculate the balance in the employee’s account as a percentage of final average salary for each year of service, offering annuity or lump sum options.
What does a DB plan with DC features imply?
It allows public-sector plans to add a DC feature to a DB plan, offering a blended or combination plan, or alongside a separate voluntary DC plan.
How should governments address key points related to hybrid retirement plan design?
They should consider plan design, funding policies, board governance, plan conversion, and participant education.
What considerations should be made for the plan design of a hybrid retirement plan?
Consider whether the plan will be primary or supplemental, replace an existing plan, its intended income replacement level, and sustainable long-term costs.
What are funding policy considerations for hybrid retirement plans?
Consider actuarial analysis for plan costs, funding mechanisms, employer and employee contributions, and investment return expectations.
What is the role of board governance in hybrid retirement plans?
Trustees and staff have a fiduciary duty to administer the plan for the benefit of plan members and must act with prudence.
What are important aspects of plan conversion for hybrid retirement plans?
Seek legal advice, ensure compliance with regulations such as the Pension Protection Act of 2006, and review disability and survivor benefits.
What are participant education considerations for hybrid retirement plans?
Provide plan descriptions, emphasize retirement planning goals, discuss healthcare options, provide tools for estimating retirement benefits, and communicate effectively.
