Benefits

Report Highlights Continued Decline in Defined Benefit Plans

By Staff Report

Feb. 14, 2011

Only 49 percent of 200 of the largest U.S. companies had ongoing defined benefit plans in 2009, down from 61 percent in 2006, according to Mercer’s Retirement, Risk and Finance Perspective.


Released Feb. 10, trends also show an increase in defined benefit plan curtailments among companies.


Some 11 percent had plans frozen to all employees as of 2009, up from 5 percent in 2006; 11 percent also had plans frozen to new employees, up from 7 percent; and 3 percent had plans frozen to some employees, down from 4 percent.


An increasing share of the companies, 26 percent, offered no defined benefit plan as of 2009, up from 23 percent in 2006.


Freezing a “plan does little to mitigate the underlying [pension funding] volatility,” Steve Alpert, principal and senior consulting actuary, and David Weissner, partner and senior consulting actuary, wrote in the perspective report. The attitude that “ ‘everyone else is doing it, so it must be a good idea’ has permeated boardroom thinking, replacing many facts with impressions.”


Plan executives “are starting to realize that it’s not the plan design that drives [pension plan funding] volatility, but the deliberate risk-seeking behavior that results in mismatching of assets to liabilities,” they wrote.


“By implementing thoughtful risk reduction strategies with immediate changes in investments, or through a dynamic derisking strategy, pension plan sponsors may be able to reduce cost volatility with less drastic changes in plan design.”


Among other data, the perspective report said in 401(k) plans, participants on average have been contributing less during the recession.


The average contribution rate as a percentage of pay was 6.8 percent as of March 31, a nearly steady fall each quarter since Dec. 31, 2007, when the rate was 7.46 percent.  


Filed by Barry B. Burr of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


 


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