New Survey Finds Darker Plan Sponsor Mood

An IFEBP news release said 42% of DB plan sponsors changed their strategic asset allocation – more than double the 20% who reported having done so in a poll six months earlier. The most common changes are increasing fixed income assets (37%), reducing U.S. equity allocations (17%) and increasing alternative fund investments (13%).

DB sponsors are also taking another look at offering a pension plan at all. Some 27% have discontinued offering pension benefits for all or some employees, and 21% have closed their plan to new participants, the survey found.

Respondents from the corporate sector are the most likely to have implemented these changes with 40% reporting they had discontinued offerings to some or all employees and 34% stating they had closed their plan to new participants.

“Six months ago, many retirement plan sponsors reported they were ‘taking the long view’ of the situation,” said Sally Natchek, Senior Director of Research at the International Foundation, in the news release. “Now, employers seem to view the crisis as more severe. There’s been a jump in the number making changes to their offerings, categories of employees covered, asset allocations and employer matches.”

DC Changes

Meanwhile, as of May 2009, 13% of DC plan sponsors have changed their investment product offerings as a result of the crisis – almost double the 7% who reported doing so six months earlier. Of the 13% who have implemented changes, 21% added more low-risk investment choices, 18% increased diversification, 16% added lifecycle (target-date) funds or money market funds, and 15% added government-backed options.

The poll found 16% of DC plan sponsors reduced or eliminated employer matches as a result of the economic situation. Of those who report having changed their match, 44% have reduced the amount of the match and 52% have suspended the match all together. Corporations are the most likely to have taken this action, IFEBP said.

Forty-four percent of DC sponsors report a decrease in participants’ overall amount of contributions – representing a sharp uptick since October 2008 when just 28% of plan sponsors reported this trend. Even more notable, 40% of DC sponsors report an increase in the number of participants stopping plan contributions altogether.

Hardship withdrawals and loans from DC plans are also on the rise, with 42% of plan sponsors reporting an increase in the number of participants making hardship withdrawals and 40% reporting an increase in those borrowing from retirement accounts, the IFEBP survey found.

This is in contrast to six months ago when 29% of plans sponsors reported an increase in hardship withdrawals and 28% indicated an increase in loans.

The survey included responses from 1,305 U.S. pension plan sponsors. Respondents represent a cross section of employee benefit sectors: corporate plans, public and governmental plans, multiemployer plans, and others with pension plans.

Pension Plans: Impact of the Financial Crisis, May 2009 Update(Item #6597A) is published by the International Foundation of Employee Benefit Plans. Nonmembers can purchase the survey for $50. To order visit www.ifebp.org/books.asp?6597A or contact the Foundation Bookstore at bookstore@ifebp.org or (888) 334-3327, option 4.