A survey by Deloitte Consulting LLP found that more than half (52%) of 125 companies polled are considering changes or already have altered their pension plans in the past 12 months.
Buffeted by increased costs due to falling interest rates and investment returns and by continued pressure from financial analysts to limit future risk, more companies are opting to move away from defined benefit plans, Deloitte said. Among those respondents that have changed their plans, the most common shift (38%) was to freeze their pension plan and shift over to a defined contribution alternative. Two-thirds of respondents that made plan changes cited cost savings as the primary driver, with 63% also trying to ease cost volatility.
“The pain is increasing rather than diminishing when it comes to defined benefit plans,” says Brian Augustian, the Chicago-based Deloitte Consulting principal who oversaw the survey. “One year of strong investment returns has not bailed out companies from their huge unfunded pension liabilities. Add to that the ruling from one federal court that found cash-balance plans to be age-discriminatory and the possibility of that specific company facing retroactive damages of $6 billion or more, it’s no wonder that 58% of respondents indicated their pension plans are a more significant business issue now than a year ago.”
Only 14% of respondents offering cash balance plans now intend to make changes to their retirement programs. But if court rulings make it impossible for them to maintain their cash balance plans, 52% have already determined they would switch to defined contribution plans, Deloitte said.
More tellingly, if respondents had the opportunity to create a retirement program from scratch, only one in 10 would offer annuity-based pension plans and just over one in five would offer account balance pension plans (either cash balance or pension equity plans-assuming age-discrimination issues can be resolved).
Deloitte surveyed senior human resources executives from 125 companies with median revenues of $1 billion and an average of 4,000 employees. Respondents represented all industries, with 36% in manufacturing and 12% in financial services.