TORONTO , AUGUST 28, 2006 – Morneau Sobeco�s latest 60 Second Survey puts into question whether defined benefit (DB) plans are a more effective workforce planning tool than defined contribution (DC) plans. The survey elicited responses from 218 employers across Canada, of which 52% provide mainly DB plans to their non-union employees while 32% provide mainly DC plans. The rest provide a combination of DB and DC plans, or no formal employer-sponsored plan.
The purpose of the survey was to gain insights on whether employers gave financial incentives to get their non-union employees to retire sooner. We excluded formal downsizing programs from this survey.
The survey found that practices vary widely � 63% of respondents almost never provide incentives to get non-union employees to retire early (at least not outside of a formal downsizing program). Of the 37% that do offer incentives, 15% provide incentives rather frequently (10% of the time or more) and the other 22% offered incentives at least occasionally.
The biggest surprise was that DB plan sponsors offered retirement incentives more often than DC plan sponsors and when they did, the incentives had a greater value. �In other words, we found no concrete evidence that DB plans are more effective than DC plans as a workforce planning tool,� says Fred Vettese, Chief Actuary of Morneau Sobeco. �One would have thought that financial incentives would be needed more frequently in DC plans to get employees to retire earlier.�
Of the 113 DB plan sponsors who responded to our survey, 19 provided financial incentives to retire at least 10% of the time and 14 of them did so at least 25% of the time. By comparison, only 7 of the 70 DC plan sponsors provided financial incentives at least 10% of the time.
The size of incentives offered by DB plan sponsors was greater on average than what DC sponsors offered. Of the 51 DB sponsors that provided incentives at least occasionally, the average value was at least 50% of annual salary. Fifteen of these DB sponsors typically offered incentives worth 100% of annual salary or more. By comparison, just 26 of the 70 DC plan sponsors provided incentives with a value of at least 50% of annual salary, and only 6 of these gave incentives worth 100% of annual salary or more. No DC sponsors reported incentives worth two times the annual salary or more, but 2 DB sponsors did so.
The most typical type of incentive was salary continuance or cash lump sum. Enhanced pension or other post-retirement benefits was offered by just 3% of the sponsors but that may reflect the fact that the survey excluded formal downsizing programs.
Morneau Sobeco is the largest Canadian-owned pension and benefits consulting and outsourcing firm, providing services to organizations across Canada and in the United States. The firm employs over 1,000 professionals and support staff in 12 cities across North America. Morneau Sobeco�s Web-based �60 Second Survey� seeks instant input from pension and benefits plan sponsors on high profile issues. More information at http://www.morneausobeco.com.