Employers Put Plan Changes on Hold Pending Economy Change

Aon Consulting surveyed 1,313 employers nationwide in its 2009 Benefits & Talent Survey and found that more than 90% are not changing their retirement programs, either in terms of benefits or management.

According to a press release, despite the fact that 64% of responding employers said there was an increase in investment-related questions from participants in 2008 versus 2007, only about a third of these organizations increased their communications around the importance of saving for retirement last year, while 62% said their communication remained unchanged from the previous year.

Fifty-six percent of respondents offer matching contributions on defined contribution (DC) plans, and most did not cite changes to their matching contributions, but Aon said some financially constrained companies did suspend or modify their matches during the economic downturn. Additionally, 41% of employers have an automatic enrollment plan, with 53% implementing a default at 3%, and nearly all (99%) planning to keep their default percentage the same this year.

No DB Changes

The survey found 92% of organizations are not changing their pension/defined benefit (DB) programs in the near future, citing the high cost of company-required contributions (71%), volatility (47%) and administrative costs (35%) as the main reasons. Employers also are not changing the risk profile of their pension plans, as two-thirds of these organizations have not made changes to their pension investments during the past two years and do not intend to do so in the next two years.

Aon said only 45% of employers offer a DB plan to their employees. Forty-one percent of employers have frozen their pension plans to new entrants; 25% have frozen their plans entirely and do not have a strategy regarding plan termination; and 20% have frozen their plans and intend to terminate the plan once funding allows.

“We do not subscribe to the ‘wait-and-see’ attitude for employers with frozen pension plans,” said Kemp Ross, senior vice president with Aon Consulting and head of Aon Investment Consulting, in the press release. “Employers have no real upside for taking on the financial risks and costs of frozen pension plans, so organizations need to establish an exit strategy for such plans, which can be executed with a balanced approach to funding and investments during the next few years, as financial markets recover.”

According to Aon Consulting's 2009 Benefits & Talent Survey, 87% of employers said employees are delaying retirement due to economic conditions.

A third of employers have less than 70% of their employees enrolled in their DC plans, with the majority (67%) saying they believe workers are not enrolled because they cannot afford it. According to Aon, 38% of these employers believe employees have little knowledge of the funds needed for retirement, and 52% said employees have only some idea of what is needed to retire with enough funds.

Just 8% of employers said they believe their employees have a strong understanding of the amount of funds needed in retirement.

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