Rising Pension Expense Heightens Interest in Design Change

January 23, 2003 (PLANSPONSOR.com) - Some 40% of plan sponsor respondents say their pension expenses will rise by more than 50% this year, according to Deloitte & Touche.

The survey of 80 mid-sized and large companies also found that another 20% expect increases of 26% to 50%, while 16% of respondents anticipate increases between 11% and 25%.

As a result of the funding squeeze, more than four out of ten companies are either making or considering making fundamental changes to their defined benefit plans. Twelve percent have already decided on changes, while nearly a third are considering possible alternatives, such as changing to cash balance or profit sharing plans.

However, “Companies that change their pension plans solely because of stock-market volatility and the current higher expenses could be making a serious mistake,” says David Hilko, practice leader of the employee benefits group for Deloitte & Touche’s Chicago office.

“Changes now won’t fix the funding issue,” Hilko added in a statement accompanying the report.   “The companies still must make up these major shortfalls under IRS rules. What’s more, benefit expenses often rise in the short term when companies switch plans, which would simply add to the current expense crisis.”

Respondents to the survey are senior financial and human resources executives from 80 companies from a broad cross-section of industries with median revenue of $1 billion and an estimated average of 5,000 employees.