5 Questions For Sylvester Schieber—VP and Director of U.S. Benefits Consulting, Watson Wyatt Worldwide

By Staff Report

Oct. 15, 2006

Sylvester Schieber
VP and Director of U.S. Benefits Consulting
Watson Wyatt Worldwide

For more than 30 years, Sylvester Schieber has written articles and given testimony to Congress about the effects of the aging workforce on the U.S. retirement system. As he plans his own retirement, which is scheduled to begin at the end of September, Schieber spoke to Workforce Management staff writer Jessica Marquez.

Workforce Management: What do you think of the new pension reform?
Sylvester Schieber:
I think it is good in that it defines the rules. There are some issues that remain potential problems. For example, to what extent can plans fall into underfunded status could be a problem. Also, some of the contribution credit rules might be too complex to manage and understand. But I don’t think that’s going to cause companies to move away from defined-benefit plans.

WM: Many people think that the legislation will make some companies freeze these plans. Why don’t you agree ?

Employers put in pension plans in the first place not because they were enlightened or wanting to run social welfare institutions; they did it because it helped them to manage the exiting of their workforce at the end of their careers. Defined-contribution plans don’t tend to have those kinds of features. At some juncture, employers may come back to these plans in one shape or form.

WM: So do you think that some of the employers that have frozen their defined-benefit plans may return to them?

I do believe some of the plans will be reopened, but it may take a while. Companies are going to discover that some share of their workforce doesn’t save enough or doesn’t perceive that they have saved enough to retire at the juncture when companies want them to retire.

WM: But what about the pending talent shortage that will force companies to retain these older workers?

I still think employers will want to manage the retirement process of their workers. Defined-benefit plans need to be restructured to keep workers longer, from an affordability perspective. Today some employers are in a situation where total spending on their retirement package can be as much as 30 percent of payroll. It’s just too expensive. So employers will want workers around longer, but they still may want an orderly process for them to withdraw. We can’t afford to lose these workers as early as we have been losing them, and we can’t afford to pay their benefits.

WM: Do you think DC plans are sufficient to get people through retirement?

They can, but it’s a tougher proposition. The new legislation does create more middle ground in the case for defined-contribution plans in that you can automatically enroll people. But some people don’t know how to invest their money, and some people are just unlucky. If you had invested 6 percent of your pay in stocks and retired at age 65 in 2000, you could have gotten a benefit that would have been 60 percent of your pre-retirement pay. But if you retired three years later, it would have only been 35 percent. People can make the right decisions all along the way, but they just get old at the wrong time.
Workforce Management, September 25, 2006, p. 8Subscribe Now!

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