Despite the improved long-term outlook on defined benefit(DB)pension plans, more respondents are planning changes than have made them, according to a joint report by The Conference Board of Canada and Watson Wyatt Worldwide.
Its updated Findings From the 2007 Survey on Pension Risk finds that 24% of respondents intend to make a change to their DB plan in the next 12 months while 16% have made a change over the last 24 months.
There is a high correlation between the likelihood of respondents changing a plan design and the existence of a deficit in their DB plan. A much higher proportion of publicly traded and private companies are paying deficit payments than in the public sector.
“This may explain why publicly traded and privately owned companies are more likely than public sector companies to initiate plan design changes in the next 12 months,” says the report.
The most common change planned for the coming year in the publicly traded and private sectors is a defined contribution(DC)/group registered plan conversion for some members’ future service.
In the non-profit and public sectors, the most common plan change is an increase in the required employee contribution rate.
Other common changes are reductions in the benefit accrual rate, early retirement benefits and other ancillary benefits. In addition, many participants mention DC conversions for all future service.
The major reasons that sponsors gave for plan design changes are to reduce cost volatility and reduce total funding or expenses.
For more about this report, click here.
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