A growing number of US firms are reducing benefits offered to staff and looking to rebalance pension funding between employers and employees, research by BNY Mellon Asset Servicing shows.
A survey of 30 large US pension plans with a combined total of $749.9bn in assets found many sponsoring employers of public and private funds were being forced to change their pension provision in the face of "unprecedented cost pressures"
Produced in conjunction with research and consulting firm Finadium, the study said more providers felt defined contribution was an attractive alternative as it could reduce funding volatility. In the long run, funding costs for defined contribution may be higher or lower than current costs, but the ability to control volatility is seen as an unparalleled advantage, it added.
Hybrid plans are also popular as they offered the professional management of defined benefit with the portability of defined contribution. The report said some type of hybrid plan may be the best solution for employers and employees if employer costs can be managed effectively.
The report, entitled: Redefining Retirement: What Changes to Defined Benefit and Defined Contribution Plans Mean for Plan Sponsors and Their Service Providers - concluded there was "little question in the minds of plan executives that they will either pay now for their retirees' benefits or that they, or society, will pay later: The main questions are how much and interrelated are those two costs and how far will the implications stretch".
However, the study also found retirement benefit packages continue to be seen as an important part of employee hiring and retention. Some 50% of private company executives surveyed said their plans made them more competitive as an employer, while 73% of public plan executives felt that their plans were an asset.
Laurin Moore, head of the US tax exempt business at BNY Mellon Asset Servicing, said: "The most pressing question that sponsors of defined benefit and defined contribution plans have to answer today is how to provide retirement benefits that offer employees sufficient funding without causing further strain to employer balance sheets or government budgets. To meet this challenge, plan sponsors are looking to their custodians and asset managers for not only investment returns, but also tools for managing performance and ideas for successful program structures."
Josh Galper, managing Principal at Finadium, added: "Selecting a retirement plan implies not only a financial commitment but also a strategy for ensuring the well-being of tomorrow's retirees. The plan executives surveyed for this study recognise the importance of this decision, along with the need to do more with less for the good of their employers."
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