Background

Milliman was awarded the defined benefit (DB) administration work for a new client. The client had recently gone through an acquisition of one of its competitors within its industry, adding a legacy DB plan to the company in addition to its own existing DB plan. The legacy plan had been managed internally with calculation support from the prior plan’s actuary.

One of the most important parts of any DB plan administration implementation is the acquisition of final benefits for the deferred vested population. Unless we are informed otherwise, we expect to receive final accrued benefits during the implementation process from the plan sponsor or the prior administrator. Obtaining this information during the implementation phase is advantageous for several reasons, the primary one being that, in many cases, final accrued benefits have already been calculated at the original point of a participant’s termination. This is important because plan rules and conditions may change over time, and a calculation done at the point of termination would most likely apply all the proper rules in effect at the time of the participant’s termination. In addition, it is assumed the calculation done at termination contained the most accurate information because the further back a participant is terminated increases the chance that the data available is less accurate.

During an on-site discovery meeting for the legacy population, we discussed final benefits for the deferred vested population. We were informed that while many final accrued benefits have been calculated, they only existed in hard copy letters within the pension filing cabinets.

The new client was technologically savvy and had intended to have the files scanned and imaged for archival purposes (as it had done with its own hard copy files), but did not realize that there was such important information contained within the files. According to the latest valuation files, there were nearly 3,400 deferred vested participants in need of a final accrued benefit.

Challenge

The client was left with two choices at this point:

The client made it very clear that it did not have the staff to review all of the files to attempt to find and extract the already calculated benefits. The client had somewhat resigned itself to having to pay the prior plan actuary to recalculate all of the deferred vested benefits.

The Milliman team was not ready to give up at this point and wanted to see if the team could come up with a third, less costly alternative.

Solution

After Milliman provided some additional physical labor to box and load up all the pension files to be taken for scanning and imaging, the Milliman team waited to receive a copy of the output. Weeks later, Milliman was provided with nearly 5,000 PDF formatted scans (one per file), totaling almost five gigabytes of information. As the files were scanned, optical character recognition (OCR) technology was also applied to the records, making the text within the electronic version of the files both searchable and extractable. We did not know it at the time, but the application of the OCR technology would be critical to our eventual resolution to the problem.

Upon reviewing files for some of the deferred vested population, we were able to find some patterns. Based upon the work location of the participant, the same form letter was used to communicate the final accrued benefit at termination, usually along with the supporting detailed calculation from the actuary. Armed with this knowledge, the Milliman team was able to search the over 5,000 scans for key phrases unique to the forms, identifying which scans contained final deferred benefit calculations. Once the files were separated from the larger population, they were cross-referenced with the population from the valuation file to determine which records should be reviewed. This left the Milliman team with approximately 1,800 carefully selected scans to review. After working out which data elements were desired from the scans for each group, the team—in a matter of days-used additional Milliman resources to go through all of the files and extract the needed information.

Outcome

The client was extremely happy with Milliman’s ingenuity in being able to find and extract over half of the final, deferred vested benefit amounts.

The client was even happier with the considerable cost savings because it did not have to pay the prior actuary to perform calculations for the population that was found.