One option that some companies are considering is to take certain tasks in-house, such as annual government filings, pension administration processing and, in rare instances, some of the initial valuation and audit preparation. This way, fees are reduced to only outsourcing of the review and final sign-off. This strategy alone can save a fair amount of money, provided that the right resources and expertise are available in-house. Other companies see outsourcing everything as the answer. Our message is simple: talk to your providers about your options and what would work best for you.
Strategy No. 4 – Use Capital More Appropriately
Given the current financial environment for DB pension plans—rock-bottom interest rates and depressed assets—an obvious quick fix would be an infusion of capital. If a risk analysis of the comp-any’s overall balance sheet and total operating costs reveals that an infusion of capital into the pension plan produces a significantly lower overall operating cost to the company, then why not do it?
In addition, if you decide that a lower pension plan risk profile is a better strategic position for your firm, then you can allocate the pension plan assets accordingly to avoid any future surplus concerns. You may be able to balance de-risking the plan assets with an increase in risk elsewhere on the balance sheet that gives you more upside benefit. Keep in mind, though, that in Ontario, you have only until the end of April to include any additional contributions in your actuarial valuation report as of Dec. 31. Another idea is to look at moving some of your pension obligations out of the plan to an insurance company via an annuity purchase. With the increased yields on corporate bonds, the cost of purchasing a group annuity for a block of pensioners is a lot more attractive today than it was six months ago. You may even be able to get a better price than what the actuarial profession is currently recommending as appropriate for pension solvency valuations due as of Dec. 31, 2008.
If there is a theme for employers, it is to have better corporate governance of pension plans to make sure you get the biggest bang for the not-inconsiderable buck you spend. For employees, it might be time to stop thinking of a choice between DB and DC, and consider instead the choice of job or no job. Working with employers to reduce costs is in everyone’s best interests.
Some legislative changes would also help, and we must all continue to influence that activity. And, of course, keep your fingers crossed for a big rebound on stock markets around the world—but don’t hold your breath until it happens. Lastly, we should not forget how critical healthy employee benefits plans are to this economy. It’s time to share the pain.
Cameron J. McNeill is president and CEO of Buck Consultants, an ACS company, and Kevin M. Sorhaitz is a principal and consulting actuary in Buck’s Toronto office.
cameron.mcneill@buckconsultants.com
kevin.sorhaitz@buckconsultants.com
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© Copyright 2009 Rogers Publishing Ltd. This article first appeared in the March 2009 edition of BENEFITS CANADA magazine.