DB-to-DC conversions slowing down as HR uses pensions to attract top talent
As chief financial officers (CFOs) become more optimistic about pension funding, HR executives should have more latitude to use pension plan design for employee attraction and retention in the future, according to a new survey.
“While pension risk continues to be a 'hot button' issue for many organizations, this year’s survey reveals that respondents are less likely to see the situation as a long-term crisis,” said Gilles Rhéaume, vice-president of public policy at the Conference Board.
“The percentage of CFOs that think that there is a crisis that will be long-lasting has dropped significantly in the past couple of years.”
Twenty-six per cent of CFOs responding to the Watson Wyatt/Conference Board of Canada 2008 Survey on Pension Risk indicated they felt the crisis was long-lasting, down from highs of 61 per cent in 2006 and 48 per cent in 2007. Meanwhile, 31 per cent of CFOs view the crisis as cyclical.
“The extent to which respondents believe that CFOs must be heavily involved in making plan design decisions seems to be on the decline, allowing greater involvement of vice-presidents of HR in the future,” said Ian Markham, director of pension innovation at Watson Wyatt Worldwide.
CFOs and HR executives at 168 organizations responded to the survey and the results show 50 per cent of respondents indicated financial considerations currently outweigh HR issues. However, only 30 per cent of respondents indicated that the financial function would outweigh HR in five years time and 58 per cent of respondents said they believe that HR and financial functions will play equally important roles.
“The increasing influence of the HR function will allow respondents to use plan design to address the issue of attracting and retaining highly-skilled or high-performing employees,” said David Burke, Canadian retirement practice director at Watson Wyatt Worldwide.
This can be seen in the decline in the number of conversions from defined benefit (DB) to defined contribution (DC). Less than three per cent of respondents are implementing some form of DB-to-DC conversion in the next 12 months, down from nine per cent in the last 24 months.
“Respondents continue to view DB plans as superior to other retirement savings arrangements for employee retention, which may be due partly to the concerns they have expressed about the ability of DC plans to provide adequate retirement income for plan members," said Burke.
Seventy per cent of respondents indicated that they are very concerned with attracting highly-skilled individuals, and 76 per cent stated that they are very concerned about retaining high-performing employees. Fifty-eight percent of respondents view the inability of DC plans to provide sufficient retirement savings— due to poor investment returns—as the most serious threat to these pension plans’ sustainability.
“While pension risk continues to be a 'hot button' issue for many organizations, this year’s survey reveals that respondents are less likely to see the situation as a long-term crisis,” said Gilles Rhéaume, vice-president of public policy at the Conference Board.
“The percentage of CFOs that think that there is a crisis that will be long-lasting has dropped significantly in the past couple of years.”
Twenty-six per cent of CFOs responding to the Watson Wyatt/Conference Board of Canada 2008 Survey on Pension Risk indicated they felt the crisis was long-lasting, down from highs of 61 per cent in 2006 and 48 per cent in 2007. Meanwhile, 31 per cent of CFOs view the crisis as cyclical.
“The extent to which respondents believe that CFOs must be heavily involved in making plan design decisions seems to be on the decline, allowing greater involvement of vice-presidents of HR in the future,” said Ian Markham, director of pension innovation at Watson Wyatt Worldwide.
CFOs and HR executives at 168 organizations responded to the survey and the results show 50 per cent of respondents indicated financial considerations currently outweigh HR issues. However, only 30 per cent of respondents indicated that the financial function would outweigh HR in five years time and 58 per cent of respondents said they believe that HR and financial functions will play equally important roles.
“The increasing influence of the HR function will allow respondents to use plan design to address the issue of attracting and retaining highly-skilled or high-performing employees,” said David Burke, Canadian retirement practice director at Watson Wyatt Worldwide.
This can be seen in the decline in the number of conversions from defined benefit (DB) to defined contribution (DC). Less than three per cent of respondents are implementing some form of DB-to-DC conversion in the next 12 months, down from nine per cent in the last 24 months.
“Respondents continue to view DB plans as superior to other retirement savings arrangements for employee retention, which may be due partly to the concerns they have expressed about the ability of DC plans to provide adequate retirement income for plan members," said Burke.
Seventy per cent of respondents indicated that they are very concerned with attracting highly-skilled individuals, and 76 per cent stated that they are very concerned about retaining high-performing employees. Fifty-eight percent of respondents view the inability of DC plans to provide sufficient retirement savings— due to poor investment returns—as the most serious threat to these pension plans’ sustainability.
