Mercer Unveils DB Plan Freeze Program

January 24, 2006 ( - Mercer Human Resource Consulting has announced Mercer Frozen Plan Solutions, a program to help employers develop a strategy for winding down the defined benefit plan, as well as offloading its ongoing management

A Mercer news release pointed out that an employer’s fiduciary obligation does not end when a plan is frozen and freezing a DB plan doesn’t immediately eliminate financial risk.

The press release said that Mercer Retirement Solutions provides for the implementation and management of the frozen plan, including actuarial services, administration, participant communications and asset management. Mercer’s investment services include portfolio strategy formulation and implementation, with the ability for employers to completely outsource the investment management of their frozen plans.

Meanwhile, Mercer Global Investments serves as a plan co-fiduciary in managing plan assets and providing investment operations, including unique fixed income approaches for frozen plans. Actuarial services, and administration designed for frozen plans, simplify routine financial compliance as well as recordkeeping and participant transactions, Mercer said.

“Many employers continue to see defined benefit plans as a viable option to attract and retain employees and provide retirement security. But as we have seen from news reports, a number of prominent companies are deciding to freeze the plan in favor of a defined contribution approach,” said Asghar Alam, Americas retirement leader for Mercer Human Resource Consulting, in the news release.

Effective management of frozen plans involves a three-step process, according to Mercer:

  • setting the financial management strategy,
  • implementing the investment strategy, and
  • managing the plan to a “target endgame” that best meets the sponsor’s business objectives.

The announcement said that, to set the financial management strategy, Mercer has developed a diagnostic framework to help clients “get from point A to point B.” This involves clearly understanding the current financial state (point A) and the inherent risks, defining the target endgame (point B), and articulating the appropriate strategy to close the gap and reduce financial risks according to the plan sponsor’s objectives, Mercer said.

A Plan Freezing Trend

Meanwhile, the Mercer product comes amid a continuing parade of companies that have changed their DB plan availability in favor of a 401(k) Plan (See  Two More Companies Join DB Plan Freezing List ).

The DB to DC announcements have included:

  • Russell froze its DB plan and announced it would “significantly improve” its existing K plan.
  • Communications giant Sprint Nextel Corp. announced that effective January 1, 2006,  Sprint employees hired before the Sprint-Nextel merger was completed August 12 who were fully vested in the program will not earn additional pension benefits. Employees hired before that date but are not yet vested in the program will be allowed to continue earning the needed five years or more of employment credit to become vested.The company offers a dollar-for-dollar match for employee 401(k) plan contributions of up to 5% as well as a discounted stock purchase program for employees.
  • Alcoa Corporation announcedthat new hires after March 1, 2006 would only be offered a 401(k) plan (See Alcoa Drops DB Plan for New Hires ).
  • IBM, which announced a major redesign of its retirement plans, announcing plans to freeze current pension benefits, while significantly enhancing its 401(k) offerings, effective in January 2008 (See IBM Beefs Up 401(k), Backs Off DB – Come 2008 ).
  • Northwest Airlines, where pilots have agreed overwhelmingly with a proposal to freeze their defined benefit plan and move to a defined contribution program (See   Northwest Pilots OK DB Plan Freeze).
  • Textile giant Milliken & Co., which announced its 9,300 employees will no longer accrue pension benefits  (See Textile Giant Announces Pension Plan Freeze).
  • Verizon Communications Inc., which will freeze its pension plan for managers and increase matching contributions  in its 401(k) plan instead (See Verizon Announces Pension Plan Freeze ).