In a survey by Aon Hewitt, nearly one in four employers with defined benefit (DB) pension plans said they are somewhat or very likely to offer terminated vested participants and/or retirees a lump-sum payout in 2013, compared with just 7% that made such a move in 2012. The global human resources consultants surveyed 230 U.S. companies with DB plans, representing five million employees, to determine their current and future retirement benefits strategies.
There is no question employers are looking for new ways to aggressively manage their pension volatility, explains Aon. In 2012, many DB plan sponsors were exploring options and planning their strategies: 2013 will be the year when many more actually implement large-scale actions such as offering lump-sum windows.
The survey also found that most employers (84%) will not make any changes to the benefit accruals they offer workers. Of those that are planning changes, 16% are somewhat or very likely to reduce DB pension benefits, while 17% are somewhat or very likely to close plans to new entrants in 2013. Just 10% are somewhat or very likely to freeze benefit accruals for all or some participants.
Over the past few years, fewer pension plan sponsors have been closing their plans to new entrants or freezing the benefits for current participants, says Aon. However, employers remain under increasing pressure to manage plan volatility and are planning both smaller actions and bolder moves to manage that risk.
Aon's survey showed that as a first step in their broader de-risking efforts, employers are contemplating what different economic scenarios would mean to their plan. Half are likely or somewhat likely to conduct an asset-liability study in 2013, and 60% are somewhat or very likely to have their investments better match the characteristics of the plan's liability through approaches such as liability-driven investing.