Multinational companies have closed the door on defined benefit pensions because deficits have become unmanageable, a new survey claimed today.
Consultants PricewaterhouseCoopers polled 114 Fortune 500 global multinationals with combined pension liabilities of $95bn. It found that only 6% wanted to maintain DB arrangements, while nine out of ten are actively arranging defined contribution as their predominant workplace retirement provision.
PwC global pension leader Marc Hommel explained that DB pension deficits remained 'stubbornly' on corporate balance sheets. He noted that the size and volatility of these deficits were concerning shareholders and creditors and making multinationals more determined to make difficult decisions about their pensions and reduce the negative impact on their organisation.
'While the death of DB retirement arrangements is not a new phenomenon in the English-speaking world, it is striking how pervasive this has become globally, even in those countries with the most complex and restrictive regulatory and labour environments,' he said.
'Multinationals are resoundingly rejecting the open-ended financial risks of defined benefits.'
The survey also highlighted that 83% of multinationals are closing their DB plans to new employees, with 71% also intending to freeze DB accruals for their existing employees.
To address the remaining legacy of DB liabilities, half of those polled said they intend to explore options to offer current and former employees cash or other terms to give up pension rights. And 45% said they are actively looking to transfer liabilities to insurance companies.
The survey also noted that a large majority of the firms (90%) would still like to play a significant role in the provision of retirement benefits to their employees. Nine in ten companies said it was important to help workers make informed decisions about their retirement savings and 83% said they plan to give more flexibility to their employees in the way they save.
But Hommel observed: 'Simply providing defined contribution arrangements for employees is not enough current arrangements are delivering inadequate retirement savings and are not effective for the new world of work.
'We expect employers to spend more time and money embracing new paternalism as part of their reward strategies. This will be an essential step in creating retirement benefits provision that results in better outcomes for employees and employers alike, within acceptable costs and risks for the employer.'
