Conference Board Report Raises Risk Issues of Pension Policy Planning

February 14, 2008 ( - A new report from research group The Conference Board asserts that continuing trends away from defined benefit pension to defined contribution programs are putting at risk workers' long-term financial health through their retirement years.

A news release about the report, “Can Continuing Changes in Pension Management Provide a Secure Retirement?” indicates that the risk comes from outliving employees’ retirement income and from what the research group says are inappropriate asset allocation decisions where workers are putting too much of their assets into the equities market.

The report compiled presentations made at a recent Conference Board pensions conference.

Regarding the first issue, Conference Board researchers contend “This is entirely possible, as many people are underestimating their life expectancy and overestimating how much money they can draw from savings. Employees are facing new responsibilities for managing retirement assets, distribution options and the payout period, and many are unable to manage the process effectively.”

For the overweighting in equities issue, the report argues that target-date funds are generally too risky for the average employee.

“The changing definition of retirement raises controversial questions, especially from a societal point of view,” notes the report. “What is the responsibility of the corporation to provide a safe and secure retirement for its employees? The evolving social contract between employees and employers has resulted in many issues that plan sponsors, policymakers and academics need to resolve. We are asking employees – who should be seen as consumers, not investors – to take on significant risks that they haven’t a clue on how to manage.”

The report indicates that presentations at the conference argued new retirement savings rules from the Pension Protection Act actually encouraged employers to pull back on their defined benefit programs. In fact, executives attending the conference pointed out that as more companies discontinue their defined benefit plans, they’ll need to change their overall retirement programs so they work more effectively for employees.

One option employers could pursue, the report argues, is phased retirement, when an employee moves from full-time to part-time employment before retiring (See Report: Employers Still Wrestling with Phased Retirement Issues ). Phased retirement has gotten a great deal of traction, with 48% of current retirees transitioning into retirement through part-time work, but mostly on their own and not through employer programs.

Another option to make retirement more secure is to create solutions that provide lifetime income, such as inexpensive and flexible annuities, the report contends (See Cover: The Mother of Invention ). Offering employees in-plan opportunities to purchase income annuities with their defined contribution assets can also provide lifetime income.

However, the report said experts still question what policy options should be considered when it comes to lifetime income investment vehicles and whether there should be legal requirements for the employee or the employer to purchase a lifetime income benefit. Right now, “it’s unrealistic to require a mandated annuity beyond Social Security,” notes the report.

The report also endorses auto plan features for DC plans. “Employers need to change their plans so they work better for employees who don’t take action,” the report says. “It is imperative that employees embrace the financial education that companies offer so they can learn how to fully use their benefits. But perhaps just as important is to determine how much savings is enough and to save that amount.”

Information about obtaining the report is here .