An SEI news release said that 42% of US and Canadian plan sponsors polled said they were still committed to their DB pensions, but that they were nevertheless making “significant changes” to the management procedures they use in running them.
Major rule changes are prompting many to look outside the organization for management help, with 81% of all executives polled saying their organizations will consider this route. Meanwhile, almost a third (29%) say they will either close, freeze or terminate their pensions by the end of 2007.
If that actually comes to pass, 52% of all US and Canadian plans polled will be closed, frozen or terminated by the end of 2007, according to SEI.Of the organizations who have already closed or frozen a pension plan:
- 56% said they received no negative response from participants. Participants had some questions but more or less accepted the change.
- 93% said they received minor to no response from participants. A small percentage of participants voiced a negative reaction or had questions, but more or less accepted the change.
“Executives are correctly identifying this watershed event as an opportunity to reevaluate the value that managing a pension plan internally brings to the organization,” said Jim Morris,senior vice president, Retirement Solutions for SEI Global Institutional Group, in the release.“While there is still a large contingent that appears to remain strongly committed to the benefit, that does not mean they aren’t questioning their organization’s role in management of the plan. They are realizing that the new funding rules will bring significant challenges in the years ahead for companies who choose to implement investment management internally.”
Within a changing pension environment, 61% ofUS executives polled revealed that the new funding legislation will either drive the organization’s long-term strategy or decisions on long-term strategy are in part a response to the new legislation.
Plan design changes continue as more than one in ten (11%) US executives polled said they felt that it has become publicly acceptable to make such plan alterations.
"First, it is evident that plan sponsors have determined that factors such as investment volatility, rising costs and new funding and accounting rules have created an environment where plan management is more complex than ever before and, in many cases, requires too many internal resources," SEI researchers wrote.
The researchers continued: "In the past pension plans were often viewed as profit centers for many organizations. In today's world that is very rare. Pensions require contributions and drain internal resources, and as such, many plans have clearly become cost centers. Executives responsible for managing these plans are beginning to recognize their organizations need to change the way plans are being managed, regardless of plan design options, and they are taking steps towards making those changes."
Of those considering plan design switches:
- 68% are doing so to eliminate or reduce costs.
- 46% are trying to eliminate or reduce investment volatility.
- 22% feel it is no longer a necessity to attract or retain employees.
- 14% said their Board is asking for an evaluation.
- 11% are trying to standardize benefits across all employees.
- 8% feel that it is now publicly acceptable to do so.
- 8% have parent companies considering change and are asking them to do the same.
The Pension Management Research Panel recently conducted the fourth in a series of quick polls with a total of 302 North American executives responsible for managing defined benefit (DB) plans ranging from $40 million to over $3.5 billion in assets. A total of 139 participants responded from US companies and 163 responded from Canadian companies.
A copy of a summary of the poll is available by e-mailing firstname.lastname@example.org .
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