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from Spencer’s Benefits Reports: The accrual of pension benefits in a defined benefit plan was discontinued in the past 12 months by 11.3% of plan sponsors due to the financial crisis, according to a recent survey conducted by the International Foundation of Employee Benefit Plans (IFEBP). Another 15.7% of plan sponsors reported that other factors caused them to discontinue offering pension benefits for some or all categories of active employees. Instead of discontinuing their plan, 8.2% of plan sponsors closed their defined benefit plan to new participants in the last 12 months due to the financial crisis, and 12.6% cited other factors for closing their plan to new participants.
The survey, Pension Plans: Impact of the Financial Crisis, studied results from an online survey of 1,305 plan sponsors representing corporate plans, public and government plans, multiemployer plans, and other types of plans. Of the 1,305 responses, approximately 80% offer a defined benefit plan or hybrid plan and 80% offer one or more defined contribution plans.
Due To Due To
Financial Crisis Other Factors
| Review acutuarial assumptions/pension plan design | 37.3% | 29.4% |
| Update investment policy | 22.3 | 28.7 |
| Change investment managers | 13.3 | 26.3 |
| Change investment consultants | 7.7 | 15.1 |
| Match assets to liabilities | 6.7 | 12.0 |
| Reevaluate asset allocation policy | 65.7 | 23.3 |
| Increase fixed-income assets | 36.6 | 16.0 |
| Reduce U.S. equity allocations | 16.6 | 10.8 |
| Reduce real estate assets | 11.0 | 10.2 |
The survey found that defined benefit plan sponsors have made a number of changes in the past 12 months to their investment strategies:
Defined Contribution Results
The financial crisis has caused 49 of the 849 (5.8%) plan sponsors with defined contribution plans to either reduce their company match or plan to do so in the next 12 months, 54 (6.4%) plan sponsors have either suspended or plan to suspend the company match in the next 12 months, and 32 (3.8%) plan sponsors have both reduced and suspended the company match or plan to do so within the next 12 months.
There were 13.3% defined contribution plan sponsors in May 2009 that indicated that they recently have made changes to their investment product offerings, which is double the number of plan sponsors that indicated that they made changes in October 2008 (6.7%), when an earlier survey was conducted. Following are some of the reasons that the 13.3% of plan sponsors gave for making changes to their investment product offerings:
Due To Due To
Financial Crisis Other Factors
| Review entire fund line-up | 28.7% | 47.4% |
| Add more low-risk choices | 20.9 | 17.5 |
| Increase diversification | 18.3 | 29.5 |
| Increase the number of options | 13.8 | 21.3 |
| Reduce the number of options | 4.9 | 11.6 |
| Add life cycle/target date funds | 16.0 | 34.3 |
| Add money market funds | 16.0 | 25.4 |
| Add inflation-protection fund | 11.2 | 16.0 |
| Add guaranteed income for life product | 6.3 | 14.9 |
A stable value fund was available at 62.0% of the plan sponsors in May 2009. The survey found that the financial crisis caused more plan participants to move into stable value funds in May 2009 than had done so in October 2008. Significant transfers occurred in May 2009 at 15.4% of plan sponsors, in contrast to 7.7% of plan sponsors in October 2008. Moderate transfers to a stable value fund were reported by 41.6% of plan sponsors in May 2009, versus 23% in October 2008.
As a result of the financial crisis, during the last six months, 44.1% of plan sponsors reported a decrease in participants’ overall amount of contributions, 39.8% reported an increase in the number of participants stopping contributions to the defined contribution plan, 42.2% reported an increase in the number of participants making hardship withdrawals, 40.1% reported an increase in the number of participants taking loans, and 53.3% reported an increase in the number of workers postponing their retirement. Only 10.9% of the plan sponsors reported an increase in participants’ overall amount of contributions, and 10.0% reported an increase in workers taking early retirement.
For more information, visit http://www.ifebp.org/books.asp?6597A.
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