24 November 2008
Pension communication – are you doing enough?
Don’t over-educate when people aren't interested, but provide enough detail for those that are.
This month, BT announced significant changes to its employee pension plan, and bonuses are now off the agenda for UBS and Goldman Sachs top officers this year.
In this special 2-part report, the Hub takes a closer look at the employee pension picture across the UK and US, and the implications of the developments for communicators.
In part 1, we looked at how communicators can identify different generations' pension needs, and here we discuss ways to ensure employees understand pension changes.
BT pension cuts
In April 2009, BT aims to save £100 million in pension contributions annually by cutting the link with final salaries, raising the retirement age to 65 and building pension entitlements more slowly, with some members paying higher contributions.
The company needs to make savings because it's continuing to pay off a £600 million deficit revealed by an actuarial valuation 3 years ago.
More big names are likely to follow BT's recently announced job cuts unless companies increase the quality of their defined contribution (DC) plans, says Damian Stancombe, head of employee benefits at Punter Southall Financial Management.
“The old joke of BA being a pension company that operates a few planes finally rings true with the news of the BT job losses.”
Stancombe says it's sad when people lose day-to-day work security related to the promise of a retirement income. He believes BT's decision to cut jobs sets a precedent for other UK companies.
Many communication directors get overridden by their legal and pension colleagues.
Educating BA pilots about changes
Now is probably a good time for employers to remind people of their benefits in the interests of engaging what may be a disillusioned workforce.
Should communicators have “benefits” on today’s communication agenda? “Yes, definitely a topic to consider now,” says Stephen Windsor-Lewis, director group people programs, Royal Mail.
British Airways for example, took a year to raise pension awareness ahead of changing its plan. In Melcrum’s report How to communicate with a global workforce, Susannah Wintersgill, communications manager, Flight Operations, British Airways, explains how the company helped its pilots understand the changes.
Managers were available for one-on-one sessions to respond to pilots’ individual questions and concerns. Wintersgill says these conversations had a halo effect. The pilots became advocates and told their colleagues. “We also invited people to drop into the office for open sessions,” she says.
Create understanding
Another way to create understanding is through accessible examples. “Although everyone realizes their circumstances are
unique, it’s useful to see a generic example close to your situation to
give a rough idea of the scale of the impact of any changes,” says Windsor-Lewis, who is closely involved in Royal Mail’s pension plan adjustments – and was also involved in the changes at BAE Systems in 2004.
He describes 2 explanatory mechanisms:
- Electronic pensions "modellers" (software that helps you produce pension calculations).
- Cardboard “ready-reckoner” discs – to give people more detail about their personal situation.
“There are often legal difficulties with the electronic modellers, as the financial climate can change,” he explains. Also, electronic printouts tend to make calculations appear more certain, rather than a possible future as viewed today.
Tackling "legal-ese"
Communication professionals sometimes find themselves in battles with legal departments and pensions professionals over communication copy – a clash of understandable English over "legal-ese".
“You may need the CEO to help you override both,” Windsor-Lewis suggests. “If you leave it to the technical experts, then you’ll fail because the subject will turn people off.”
As a compromise, clear legal caveats can be added, but at least the copy will be in plain English. “Many communication directors get overridden by their legal and pension colleagues,” he says.
Commitment and action
When a pension plan changes, most large employers will be making the decisions. This leaves little direct action for the employee. But as a communication principle, ongoing change communication is useful.
Don’t over-educate when people are clearly not interested, but provide enough information for those that are.
However, Windsor-Lewis advises communicators to promote awareness of all benefits – putting pensions in a wider company context.
The thrust should be less about pensions and more about benefits in their totality.
Bad news for the individual
“These major pension changes are very bad news for the individual,” Windsor-Lewis reminds us. “Human nature says, ‘Don’t keep hitting me over the head with the same bad news. It’s done. Can’t we move on?’"
But this isn’t a corporate excuse to sweep communication under the carpet. Communication must give people the detail they need. Once completed, people should be helped through the transition by putting their personal situation into a wider context.
“Tell people frankly what their benefits were, what they are now and show the retail price index variation,” Windsor-Lewis advises.
US pension provision changes
Joel Shuler, Strategic Internal Communications Team, Corporate Communications, at financial services firm USAA has experienced significant retirement benefits changes during his career.
He recently spoke to the Hub about transitioning to a defined contribution plan in the US.
“Very few US companies now offer traditional pension plans,” he says. “Much of the reason results from US accounting rule changes requiring companies to show future liabilities on their books.”
Understanding the options
At a previous employer (not USAA) the company (a public utility) decided to let employees choose between 2 retirement plans – the traditional pension plan and a new defined contribution plan. “We had an enormous communication campaign to help everyone in the company understand both options,” he explains. This included providing benefits projections over 15 or 20 years, one-on-one meetings with financial planners and group meetings.
In the end, around 85% decided to stay with a pension even though it may not have been the best choice for everyone.
Half the employees were unlikely to remain with that same employer for the next 20 years, but the decision reflects the “long-term benefits” culture of the organization.
We had an enormous communication campaign to help everyone in the company understand both options.
“Stick to your guns”
Shuler’s advice for communicators is, “Stick to your guns. Communicators must insist on developing a communication plan that gives employees plenty of time. You can’t just give them summary booklets of benefits, or direct them to the website, and expect them to understand every piece.”
In US benefit changes, most companies are trying to provide a valuable benefit that's attractive to potential employees. “The company needs everyone to fully understand the benefits by providing multiple avenues for employee dialogue – and explain why the company is making the decision to change,” Shuler says.
“It’s particularly important to create environments where employees can hear each other’s questions because they may be unsure what questions to ask themselves.”
A new communication responsibility
In the 1970s and '80s companies never worried too much about pension communication. But Shuler believes companies now have a new responsibility for ongoing communication. “An individual’s account is something they must watch and make ongoing decisions about. It’s not enough just to communicate the change of benefit.”
The US has been through a 20-year cycle where 401(k) plans – part of a family of retirement plans known as defined contribution plans – were steadily rising. People had the perception that their money was safe and growing. But in the last few months people have found their 401(k) value has dropped 30% or 40%.
“People aren’t conditioned to understand that this could happen and don’t know how to react. Should they stop paying in?” Shuler says. “They need to understand the basics of investment – buying shares at lower cost so that when the environment does turnaround there’s an opportunity to make significant gains.”
Communicators must insist on developing a communication plan that gives employees plenty of time.
Financial risk
As US Congress searches for solutions to the economic crisis, it shouldn't overlook the impact on pension plans – and the millions of American workers covered by them, according to global consulting firm Watson Wyatt.
If nothing is done to provide funding relief, many defined-benefit plans could be frozen, placing participants at additional financial risk.
“No one could have predicted the disruption that has occurred in our financial markets and the resulting impact on defined-benefit plan sponsors,” said Gene Wickes, global director of benefits consulting at Watson Wyatt.
“New pension funding rules will squeeze pensions at exactly the wrong time, and both companies and workers will bear the consequences. When Congress reconvenes, we urge them to take a common-sense approach to pension funding that reflects current economic conditions, not one based on theoretical models. Workers’ retirement benefits are at stake.”
Have your say
Have you been involved in communicating company pension changes? What are your tips for other communicators? If you haven’t been involved yet, do you have this topic of communication on your agenda?
Recommended resources:
Incentives to persuade older workers to delay retirement
Pension communication - a few approaches
Q&A: What can we do to boost morale when a large number of employees are made redundant?
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