Plan Sponsors: Pension Reforms Could be Trouble

A news release from the Committee on Investment of Employee Benefit Assets (CIEBA), a Bethesda, Maryland group representing more than 110 of the nation’s largest retirement funds, said respondents cited a potential shift from equities to bonds, increased costs for pension plans and a likely reduction in benefits for current or future defined benefit pension plan participants as causes for their concern.

“Policymakers in Washington should keep these survey results in mind as they consider pension reform,” said Kimberly Walker, CIEBA chairman and president, Qwest Asset Management, said in the news release. “Pension plans are long-term in nature, and reform proposals should be also. Reform should protect and enhance retirement security for current and future workers not undermine it.”

The majority of respondents (83%) indicated that the impact of implementing two or more of the pending reform proposals would have a significantly greater effect than any single initiative.

Pension plan investment policies would be affected by shifting assets from equities to bonds. More than one-third (37%) of respondents who said the collective impact would be significant expect to reduce the equity holding in their plans by 11%-15% or more, according to the survey. The timeline for making asset allocation changes would be short with most respondents stating that these changes would take place over three years or less. In addition, almost 70% of all respondents would seek to increase the duration target of their US bond portfolio.

“Shifting pension plan assets away from equities raises the long-term costs to employers sponsoring defined benefit plans and has an impact on pension plan participants,” CIEBA said in its news release. Sixty percent of respondents with ongoing, open plans indicate that access to benefits for current and future workers would be curtailed if two or more of the proposed reforms are adopted. Almost one-third (31%) thought that a ‘hard’ freeze” – a freeze on future benefit accruals for current workers – was “very likely” or “likely.” A similar number (29%) indicate a high likelihood that their plans would be closed to new participants (‘soft’ freeze).

Forty-seven senior corporate investment officers responded to the survey. Overall, survey respondents manage $418 billion in defined benefit plan assets on behalf of five million plan participants and beneficiaries.

More information about the organization is  here .