Aon Hewitt Survey Reveals More Employers Plan to Offer Lump-Sum Pension
Payouts in 2013
Most Employers Are Changing DB Plan Strategies to Better Manage Pension Risk
LINCOLNSHIRE, Ill., Feb. 13, 2013
LINCOLNSHIRE, Ill., Feb. 13, 2013 /PRNewswire/ --Last year marked a watershed
moment in retirement benefits as numerous companies decreased their pension
risk exposure by offering participants a one-time lump-sum pension payout. A
new survey by Aon Hewitt, the global human resources solutions business of Aon
plc (NYSE: AON), reveals more employers plan to follow suit in 2013.
Aon Hewitt surveyed 230 U.S. employers with defined benefit plans,
representing nearly five million employees, to determine their current and
future retirement benefits strategies. According to the findings, more than
one-third (39 percent) of defined benefit (DB) plan sponsors are somewhat or
very likely to offer terminated vested participants and/or retirees a lump-sum
payout during a specified period, also known as a window approach, in 2013. By
contrast, just 7 percent of DB plan sponsors added a lump-sum window for
terminated vested participants and/or retirees in 2012.
"There is no question, employers are looking for new ways to aggressively
manage their pension volatility," explained Rob Austin, senior retirement
consultant at Aon Hewitt. "In 2012, many DB plan sponsors were exploring
options and planning their strategies—we think 2013 will be the year when many
more actually implement large-scale actions such as offering lump-sum windows.
Pension Benefit Guarantee Corporation (PBGC) premiums will begin to increase
in 2013 and 2014, which will increase the carrying cost of pension liabilities
and give plan sponsors an economic incentive to transfer those liabilities off
their balance sheet."
Aon Hewitt's survey also found that most employers (84 percent) will not make
any change to the benefit accruals they offer workers. Of those that are
planning changes, fewer than one-in-five (16 percent) employers are somewhat
or very likely to reduce DB pension benefits, while 17 percent are somewhat or
very likely to close plans to new entrants in 2013. Just 10 percent are
somewhat or very likely to freeze benefit accruals for all or some
"Over the past few years, we've seen fewer pension plan sponsors closing their
plans to new entrants or freezing the benefits for current participants," said
Austin. "However, employers remain under increasing pressure to manage plan
volatility and are planning both smaller actions and bolder moves to manage
As a first step in their broader de-risking efforts, Aon Hewitt's survey
showed employers are contemplating what different economic scenarios would
mean to their plan. Half are likely or somewhat likely to conduct an
asset-liability study in 2013, and 60 percent are somewhat or very likely to
have their investments better match the characteristics of the plan's
liability through approaches such as liability-driven investing.
"While the economic environment makes it imperative for DB plan sponsors to
manage pension risk in some way, it's critical that they approach it in a
thoughtful manner," stressed Austin. "The right de-risking strategy for one
plan may not be an appropriate approach for another—most importantly,
employers need to consider the funded status of their plans. For example,
plans that are over funded will likely take measures to lock in this position
and erase future volatility through actions such as offering lump-sum windows.
An underfunded plan will need to take an approach that attentively addresses
volatility such as implementing a glide path investment strategy that will
de-risk the plan as the funded position improves."
Aon Hewitt's survey found that while just 18 percent use this glide path
strategy today, the percentage is expected to nearly double to more than 30
percent by the end of 2013. This shift comes as more plan sponsors abandon the
traditional approach of investing a majority of plan assets in equities. Aon
Hewitt's survey found that while 52 percent of plan sponsors favor this
majority equity strategy today, just 31 percent will use this approach by the
end of the year.
"Plan sponsors are taking a more holistic view of their pension plan by
looking at the overall funded status of the plan and not focusing on the
liabilities or assets individually," explained Austin. "A glide path approach
provides an easy link between the two. Additionally, this approach allows plan
sponsors to have a long-term strategy in place that will systematically
eliminate risk over time."
Aon Hewitt designs, advises and administers defined benefit plans for hundreds
of employers. Click here to read the full report.
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About Aon Hewitt
Aon Hewitt is the global leader in human resource solutions. The company
partners with organizations to solve their most complex benefits, talent and
related financial challenges, and improve business performance. Aon Hewitt
designs, implements, communicates and administers a wide range of human
capital, retirement, investment management, health care, compensation and
talent management strategies. With more than 29,000 professionals in 90
countries, Aon Hewitt makes the world a better place to work for clients and
their employees. For more information on Aon Hewitt, please visit
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