Cost Control Top Priority for Canadian DB Plan Sponsors

February 20, 2008 (PLANSPONSOR.com) - A nationwide survey of Canadian defined benefit pension plans released by Buck Consultants found that 43% of plan sponsors identified cost containment as the most important issue they now face.

According to a Buck press release, this is a significant change from the prior Buck survey, conducted in 2003, in which employee understanding of pensions was the top concern. Other DB plan concerns expressed by respondents included asset management (42%) and pension governance (22%).

The survey found that nearly 90% of respondents now contribute more than 5% of total payroll costs for their DB plan, well above the typical contribution rates for defined contribution plans, the release said. Sixty percent of respondents indicated that additional contributions are required to resolve funding and solvency deficiencies in their DB plans.

“Oversight boards are turning their attention to pension plans not only because of Sarbanes-Oxley, but also because of the significant pressures these plans have placed on the company balance sheets in recent years,” said Charlene Moriarty, a consulting actuary for Buck, in the announcement.

To control costs, the survey found that 23% of sponsors are considering either moving to a DC plan or winding up their DB plan in the next five years. A further 56% have made, or are considering making, DB plan design changes. “Some of those changes will likely include a move away from generous early retirement provisions and automatic cost-of-living increases,” Marc-Andr√© Vinson, a senior consultant for Buck, pointed out in the release.

The study, “Moving Forward – An Overview of Defined Benefit Plans in Canada” was conducted in the third quarter of 2007 and included more than 150 respondents.

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