Employers are continuing to abandon defined benefit (DB) pension plans, according to a survey of more than 150 Canadian pension plan sponsors.
More than one-half (51 per cent) of private-sector DB plan sponsors surveyed have converted their plans to defined contribution (DC) for current or future employees — up from 42 per cent in 2008, according to Towers Watson's 2011 Pension Risk Survey.
While the economic conditions of 2009 and early 2010 prevented many plan sponsors from taking drastic action, the percentage of plan sponsors preparing to implement changes has significantly increased as the financial markets continue to improve, according to Towers Watson. Of the private sector DB plan sponsors considering adjustments to plan design, funding policy or investment strategy, 52 per cent said they have prepared a “journey plan” of measures to contain cost and volatility.
“The 2008 crisis may have been the final straw for senior finance officers” said David Service, director of Towers Watson investment services. “While plan sponsors may not be able to afford to make changes right now, many are working on strategies to de-risk or even exit when the financial position of their plans improve."
However, there may be some hope for traditional DB pension plans. With an aging population, 59 per cent of survey respondents agree employees will be showing a greater appreciation for DB pensions. The potential impact on attraction and retention is also a major concern for 52 per cent of organizations that are considering plan design changes, found Towers Watson.
“Canadian employees tell us that the prospect of a competitive pension is one of the top five factors that would influence them to leave their current employer,” said Martine Ferland, Canadian retirement leader at Towers Watson. “As election rhetoric heats up the pension debate, we hope to see additional measures proposed that will increase the sustainability of private sector pensions.”
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