To Avoid Alarming Pension Participants, Communicate VAPP Changes
Your plan just decided to adopt a new pension design, moving away from a traditional defined benefit (DB) model to a variable annuity pension plan (VAPP). The reasoning is sound. A VAPP design lessens the plan’s investment risk, making it more attractive for new employers to join. Plus, your participants could receive a larger benefit in retirement. Your actuaries are hard at work drawing up the details. So the hard part is almost over, right?
Not so fast.
This is a significant change for participants, and buy-in won’t happen automatically. Explaining how it works in simple, relatable terms can reduce uncertainty and build confidence in the VAPP.
Communication Is a Must
Retirement readiness, and financial well-being in general, is a sensitive subject. Northwestern Mutual estimates that retiring comfortably in 2026 requires $1.46 million in savings. Moreover, 40% of adults don’t expect their retirement savings and assets to last their entire lives. A pension goes a long way toward ensuring retirement stability by providing a guaranteed income for life. Your participants are counting on it!
But now you’re changing it.
To many participants, a pension design change feels like a threat to their futures. People naturally fear the unknown, especially when it involves their retirement security.
That anxiety can be even stronger among participants whose funds have faced financial challenges. If a fund implemented benefit reductions under the Multiemployer Pension Reform Act (MPRA) of 2014, participants may understandably view any new pension design with skepticism. Even for funds that avoided MPRA cuts, participants may have received notices describing their plan’s funding status as endangered, critical, or critical and declining. These aren’t exactly reassuring words.
Whether due to financial sensitivity or past experience with pension funding issues, it’s easy to see why participants may be wary of a major change to their pension plans. Without knowing how a VAPP design works and how it can benefit them, uncertainty can quickly give way to fear or anger—often at the expense of Fund Office staff.
Finding the Right Message
There’s a good chance participants have never fully understood your traditional DB plan either, regardless of its funding status. After all, Summary Plan Descriptions don’t make for interesting bedtime reading. But the core message of a traditional DB plan is simple: The benefit you’ve earned is defined upon your retirement and doesn’t change.
A VAPP is still a type of DB plan, but it’s a more complex design with several variables—by definition—affecting how the benefit is defined. Consequently, the messaging to participants must be more nuanced. A VAPP communications campaign anticipates questions and crafts messages accordingly. For instance, over the dozens of VAPP communications campaigns we’ve led, the most consistent question from participants is “What happens to the benefit I’ve already earned?”
A simple question with a powerful answer: Nothing!
The concept is one pension benefit under two formulas. The messaging is stability for benefits earned under the traditional DB plan, opportunity for better benefits earned under the VAPP, and safety for the plan when markets disappoint.
Once participants understand they’ll still receive a guaranteed monthly benefit, much of their initial anxiety tends to fade. And once they learn that their benefit has the potential to increase, the conversation starts to feel a lot less threatening and a lot more positive. As we've said before, helping people understand big changes drives acceptance. The more participants understand what's changing and why, the more likely they are to trust the process and engage with the information you're providing.
That’s why tackling participant anxiety head-on is time well spent. Walk participants through how the new plan works with calculations and visuals. Explain why the change is happening and what’s in it for them, using enough detail to build confidence without overwhelming people with technical complexities. This isn’t the place for a deep dive into notional accounts or early retirement adjustments.
How to Reach People
Announcing the change is important, but it’s only the first step. A letter in an envelope won’t do the trick here. Helping participants understand pension changes takes time, more real estate, and different channels, than a single letter.
The most successful VAPP transitions typically use multiple communications channels over time rather than a single announcement. One of my clients, a multiemployer building trades fund, included the following in its VAPP communications campaign:
- Strategy development to settle on key messages and communications channels
- An announcement letter to introduce the VAPP change while promising forthcoming educational resources
- A participant toolkit featuring a colorful branded envelope, cover letter, and an 8-page educational guide that demonstrated multiple years of calculations and projected benefits 10 years into retirement
- An educational video that walked participants through a sample calculation, designed to be shown at union meetings, and posted on the Fund’s website
- A postcard promoting the video and directing participants to it via a QR code
- A flyer that could be used in future forums to educate participants and new members about the VAPP
- A letter to deferred vested participants and retirees informing them that the change wouldn’t affect them or their benefits (I affectionately named this the “Don’t Call the Fund Office” letter.)
Your plan may not need every communications tactic in the playbook, but it should use more than one. We advise a few touchpoints, including a printed guide and an educational video.
Different media serve different purposes and audiences. A printed guide gives you room to walk through benefit calculations and get more into the weeds. When mailed to participants’ homes, it also reaches spouses and family members who may influence retirement decisions.
A video, on the other hand, brings concepts to life. For participants whose eyes glaze over when they encounter numbers and formulas, visual media makes the information less intimidating.
Don’t Stop the Momentum
A VAPP campaign creates a rare spike in participant attention. Use it.
Once participants are engaged, broaden the conversation to their overall financial well-being. Can they access financial coaching or advisory services through an employee assistance program? Do they have a defined contribution plan in addition to their pension? Has anyone helped them understand Social Security and how it fits alongside the retirement benefit plans you provide?
Your participants may not remember what a hurdle rate or smoothed rate of return means, but they’ll remember your transparency. They’ll also have resources they can revisit whenever they have questions, provided in a way that people actually talk and think, not just in legal or actuarial language.
One more advantage of taking this approach: You get to take credit for the value of the pension benefit you’ve built. The more you reiterate the value of your retirement program, the more likely your people will understand, appreciate, and make the most of it. As of 2024, barely 1 in 5 non-retired Americans had access to a defined benefit plan. Offering your pension benefit is a story worth telling. Use the VAPP transition as an opportunity to reinforce how rare and powerful their pension is.
Remember, retirement benefits are complicated. A VAPP transition is more than a pension design change. It's an opportunity to build understanding, reinforce trust, and help participants make better decisions about their financial futures. Don't let that opportunity go to waste.
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Chris Fielder, Consultant, Communications, Multiemployer Solutions Lead, has been with Segal Benz since 2019, working with private sector employers, public sector entities, and multiemployer trust funds.
