Survey Finds More Sponsors Planning DB Plan Changes

According to a Wells Fargo press release, the 2007 Strategic Initiatives in Retirement Plans Survey found that within 18 months 14% of respondents with ongoing pension plans expect to close their plans to new employees, but continue for existing participants. Another 10% will terminate their plans. Sixty-four percent said they are planning no major changes to their plans.

The two biggest challenges facing survey respondents with ongoing traditional pension plans are the cost (34%) and lack of employee appreciation (32%), the press release said. Twenty-nine percent of respondents said the 2006 Pension Protection Act will result in increased contributions they have to make, while 46% expect their contribution requirements to remain the same.

Nearly two-thirds (63%) of respondents said they plan to use asset/liability forecasting to minimize the volatility of plan costs and 32% plan to develop asset strategies that minimize downside risks.

Of the over 350 employers nationwide responding to the survey, 37% offer a defined benefit plan, the majority of which are traditional pension plans. Nearly one-quarter (23%) of these traditional pension plans are already closed to new employees and 18% are frozen. Most of these changes were made in the last two years (61%) for closed plans and (40%) for frozen plans, the survey found.

Sixty percent of sponsors of closed plans and 58% of sponsors of frozen plans said their decision was made because of the nationwide trend of companies moving away from pension plans in favor of 401(k) plans.

“We were surprised that so many sponsors noted current trends as the key reason – not costs or volatility concerns – why they closed or froze their pension plans,” said Laurie Nordquist, head of Wells Fargo Institutional Trust Services, in the release. “This apparent ‘herd mentality’ may reflect the tight labor market in some areas and employers wanting to keep their benefit plans competitive and appreciated by employees.”