Expense and Funding Volatility Lead Co.'s to Ax Pension Plans

August 24, 2005 (PLANSPONSOR.com) - Seventy three percent of large employers with a defined-benefit pension plan say their number one concern with maintaining it is expense and funding volatility.

This finding of PricewaterhouseCoopers’ Management Barometer, along with recent pension reform, is causing employers to consider freezing their pension plans. In a news release, the company said that 67% of employers have reported closing the plan to new hires and 63% have reported freezing their plan.

The survey found that 54% of companies with a defined benefit pension plan have recently changed their plan or are considering changing it. Thirty eight percent have made a change over the past three years and 16% are considering a change over the next 12 months.

The reasons cited for changing their plans include:

  • Increased costs – 85%
  • Volatility of funding or expense – 64%
  • Accounting requirements – 30%
  • Competitors’ actions – 18%
  • Government regulations – 18%

Employers are concerned about the effect the changes will have on employees though. According to the news release, the survey found that 75% of companies that made changes protected current employees’ benefits. Fifty nine percent adjusted benefits only for new hires and 48% grandfathered in certain employees based on age or service. Fifteen percent provided additional “transitional” benefits and 11% gave all employees a choice between old and new plans.

The Management Barometer is a quarterly survey of top executives of large US-based multinational businesses. The survey findings are from interviews with 147 CFOs and Managing Directors, of which 48% have a defined benefit plan.