Pace of DB Change is Slowing

March 3, 2008 ( - A new Hewitt Associates survey of the U.S. retirement landscape finds the pace of defined benefit pension plan change appears to be slowing.

A Hewitt news release said 72% of respondents that offer a pension plan say they will make no changes in 2008, compared to just 41% last year. Only 3% said they are very likely to close their plans and 2% said they are likely to freeze their plan, down from 6% and 4%, respectively, Hewitt found.

The study discovered that companies are instead focusing on management of the financial and other risks of their plans more effectively, given the requirements of the Pension Protection Act. Generally companies are increasing their focus on reducing plan risk and ensuring that employees take appropriate advantage of their retirement plans.

“This year, we see companies investigating alternate methods of improving pension plan management, which mitigates financial and other risks that can be created by these benefits,” said Alison Borland, defined contribution consulting practice leader at Hewitt, in the release.

Hewitt’s study of 190 mid- to large-sized U.S. companies reveals that new funding rules for pensions and increased scrutiny on retirement plan operations are prompting the following actions fromcompanies offering pension plans:

  • almost two-thirds (63%) said they are very likely to perform funding and accounting projections,
  • 30% plan to perform an asset liability study, and
  • 29% are very likely to assess the risks that their pension plans are running based on current strategies.

More than half (55%) of companies offering a defined contribution plan said they intend to review their fund operations, including expenses and revenue sharing. Fiduciary responsibility is also a focus, with 35% of companies saying they are very likely to review their 401(k) plan governance structure or hire a third party monitor to review their investment options.

Encouraging Employee Participation

At the same time, more than half (56%) of companies still rank employees’ taking accountability for retirement as a high priority this year, and half say they plan to focus on helping employees better understand their retirement benefits, Hewitt found.

Much of their efforts will be carried out through communications. Two-thirds of companies are very likely to undertake a communication initiative on 401(k) plan participation, and 64% are likely to communicate to their employees about diversification and fund usage. In addition, 58% plan to focus their communication efforts on 401(k) contribution levels, Hewitt found.

“Recent legislation, regulations from the IRS and Department of Labor, increasing post-retirement needs and current litigation are putting employers under more pressure than ever to effectively manage two sides of the retirement equation – minimizing risks and unnecessary costs, while optimizing the benefit that employees will get from their retirement programs,” said Borland.

As a way to ensure employees take appropriate advantage of the plans offered to them, automated tools are becoming standard features in 401(k) plans. Today, 44% of companies offer automatic enrollment to their employees, compared with 36% in 2007, Hewitt found.

Among those plans that do not offer automatic enrollment, 30% said they are very likely to offer it in 2008, while 27% are somewhat likely. More than one-fifth (22%) of companies currently automatically enroll both existing and new employees in their 401(k) plans, up from 15% in 2007; and another 27% are very likely to do so in 2008.

Among those companies who offer automatic enrollment, almost three quarters (72%) plan to convert their default investment fund to a premixed portfolio fund. In addition, 44% of companies have a form of contribution escalation in their 401(k) plans, up from 31% in 2007.

Hewitt said the survey also found:

  • In an effort to reduce plan fees, three in ten (29%) employers plan to alter their fund options. Twenty-nine percent of employers also plan to replace higher-cost mutual funds with lower-cost institutional funds.
  • Approximately one-fifth (19%) of employers currently offer a Roth 401(k), up from 12% in 2007. Among those companies that do not, 11% said they are very likely to add one in 2008.
  • Nearly one quarter (22%) of companies currently offer managed accounts, up from only 15% in 2007. Among those that do not currently offer them, 6% indicated they are very likely to offer them in the coming year.
  • Over half (51 %) of companies offer automatic rebalancing, up from just 39 % in 2007. Another 12% said they are very likely to offer it in 2008.
  • Consistent with previous years, the majority of companies said they plan to make no changes to their company match (71%). Twelve percent said they plan to add/increase the company match, and only 2% plan to reduce or eliminate the company match.
  • Over two-fifths (43%) of employers currently offer online third-party investment advisory services, and another 47% plan to offer them in 2008. Thirty-four percent provide in-person third-party investment advisory services, and another 30% plan to offer them in 2008.