Companies keen to offload responsibility of DB plans

Biggest stumbling block is many unsure how it would work
By
|hrreporter.com|Last Updated: 12/20/2007

Canadian organizations with closed defined-benefit (DB) pension plans are keen to offload the responsibility for these plans, according to a new survey.

Of 113 employers queried by Morneau Sobeco, 55 per cent have closed their DB plans to new hires or plan to do so in the near future. And among these, two-thirds (67 per cent) indicate they are interested in offloading the management of the plan to a third party.

“Employers are more likely to offload a closed DB plan to a third party than a plan that is still a going-concern,” says Fred Vettese, chief actuary of Morneau Sobeco in Toronto.

“That is because closed plans play a diminishing role within the organization’s overall compensation program but still require a great deal of hands-on effort to manage them.”

The biggest stumbling block to offloading (for 30 per cent of respondents) is that the idea is still new and there are unanswered questions as to how it would work. Another perceived obstacle is fear the management duties would be offloaded but not the liability.

“Traditionally the only way to offload was to an insurance company by purchasing annuities but this is usually seen as an expensive way to do it. We expect to see new types of service providers entering this field as DB plans continue to be closed to new hires,” says Vettese.

The survey by Morneau Sobeco, a pension and benefits consulting and outsourcing firm, was done in September.

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