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 are hybrid retirement plans?
Plans that offer a combination of defined benefit (DB) and defined contribution (DC) plan features, which can be primary, optional, or supplemental.
What are cash balance plans?
A type of hybrid plan where participants’ accounts are credited with pay credits and investment credits, with the employer bearing investment risk.
What distinguishes hybrid plans from DC plans?
Hybrid plans establish notional accounts for participants, whereas DC plans establish actual funded accounts.
What should be considered in hybrid retirement plan design?
Whether the plan will be primary or supplemental, replace or supplement existing plans, desired benefits, cost and sustainability, employee eligibility, vesting requirements, and benefit structure components.
How should funding policies be approached for hybrid plans?
By determining plan costs through actuarial analysis, establishing manageable funding mechanisms, designing a comprehensive investment program, and conducting actuarial valuations for benefit enhancements.
What are key governance considerations for hybrid plans?
Trustees and staff have fiduciary duties to administer the plan solely for the benefit of plan members and must act prudently.
What are essential participant education elements for hybrid plans?
Providing summary plan descriptions, emphasizing retirement planning goals, discussing retiree health care options, offering retirement benefit estimation tools, and using various communication methods.
How can plan conversions to hybrid models be managed effectively?
By seeking professional and legal advice, ensuring compliance with relevant laws, and considering age discrimination issues and external arrangements for disability and survivor benefits.
