Defined Benefit Pensions Threatened - Forbes.com
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Defined Benefit Pensions Threatened
Oxford Analytica, 06.23.09, 06:00 AM EDT
The economic crisis has accelerated the decline of DB plans in the U.S. and U.K.
Excerpts:
Both the U.K. and the U.S. are traditional bastions of private defined-benefit pension plans. But the recent market crash has sent this important social and economic institution reeling, compounding a pre-existing phenomenon that has seen defined-benefit schemes practically eliminated as an option for new workers entering the private sector.
In the U.S., the top 100 corporate pension plans experienced funded-status drops of roughly 30% in 2008, according to Pensions & Investments. Given that these plans had a surplus of over $110 billion in 2007, ending 2008 with a deficit of close to $200 billion is particularly serious.
The Center for Retirement Research at Boston College estimates that U.S. firms are going to have to increase contributions by about $90 billion in 2009 over 2008 levels.
The underfunding, and its related costs, is accelerating the demise of private defined-benefit (DB) pensions. In the U.K. and U.S. this could spell the end for this once-dominant pension institution.
Pension Benefit Guarantee Corp.-insured private-sector DB plans have been in decline since the 1980s; as of 2007, U.S. companies sponsored around 30,000 DB plans, down from over 114,000 in 1985. This trend seems to be accelerating. The majority of Fortune 100 firms now only offer new employees defined-contribution plans. According to Watson Wyatt, a consulting firm, this is the first time that has happened.
In a 2008 report, the Government Accountability Office suggested that most U.S. firms freeze their DB plans due to cost considerations and the volatility of plan funding. Given both have just increased, there is widespread expectation that pension plan freezes and terminations will accelerate.
Read full article: http://www.forbes.com/2009/06/22/pension-plans-economy-business-oxford-analytica.html?partner=daily_newsletter
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This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
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