US - Employers need to take great consideration before shifting from defined benefit to a defined contribution scheme because of concerns over regulatory uncertainty and financial volatility, Watson Wyatt has warned.
The warning comes after new research has shown that 36% of companies within the FORTUNE 100 now offer DC or 401(k) schemes, up 11% on the year before. Additionally the level of companies offering traditional DB schemes open to new hires has fallen 5% to 37%.
“Moving to only a defined contribution plan may make it harder to retain employees and ensure they have adequate retirment savings,” remarked Sylvester J Schieber (pictured), director of US benefits consulting, Watson Wyatt. “Companies should carefully analyse the full implications of any changes they are considering.
Schieber also noted the defined benefit system was at a “critical stage” amidst considerations by the US Congress to rewrite key major pension laws and while the market place decides the best way to handle employee retirement programmes.
Watson Wyatt has therefore also called on Congress to act on long-standing funding and regulatory issues affecting pensions.
Kevin Wagner (pictured), practice director for growth in Watson Wyatt’s retirement practise, noted that while pension-related developments continue, firms should take some time out to carefully consider any dramatic scheme changes they may wish to make.
“With legislative and regulatory decisions, market place comparisons and demographic changes in the workforce up in the air, companies may want to use the next few months to think through their options as they wait to see what the new landscape looks like,” he said.
By Daniel Flatt
The top stories this week were the High Court's decision to block the £12bn annuity transfer from Prudential to Rothesay Life, and a separate court ruling that 'raises the bar' for pension rectification exercises.
Guaranteed minimum pension (GMP) equalisation has soared to the top of pension schemes' to-do lists, with 58% stating it is a priority project, research from Equiniti has revealed.
Professional Pensions is holding its defined contribution (DC) conference on 4 September.