Defined Benefit Pensions at a Tipping Point, Towers Watson Survey Finds

Private sector employers have crossed a “Pension Rubicon”

TORONTO, April 6, 2011 – As retirement savings adequacy and security becomes an election issue, a new survey of more than 150 Canadian pension plan sponsors from global professional services firm Towers Watson (NYSE, NASDAQ: TW), indicates that just over half (51%) of the private sector Defined Benefit (DB) plan respondents have now converted their plans to Defined Contribution (DC) arrangements for current or future employees – up from 42% in 2008. The study suggests that this trend shows no sign of relenting.

The survey also reveals that recent improvements in economic conditions have had virtually no impact on executives’ perception of a DB funding crisis. The percentage of respondents who agree that there is a pension funding crisis has remained at historic highs since the financial downturn of 2008. The survey found that more than half of respondents (56%) believe that the funding crisis will persist for the long-term compared to 34% who held this view in 2008 before the onset of the recession. Just under one-third (32%) perceive funding challenges to be a cyclical phenomenon.

“The financial crisis has caused a shift in plan sponsor attitudes,” said Ian Markham, Canadian Retirement Innovation Leader at Towers Watson. “This year’s survey results show that employers planning a conversion to DC are intent on doing so regardless of whether economic conditions improve, or a more sponsor-friendly legislative environment appears, or even in lieu of less dramatic changes to plan design or investment strategy.”

While the economic conditions of 2009 and early 2010 prevented many plan sponsors from taking drastic action, the percentage of plan sponsors who are preparing to implement changes has significantly increased as the financial markets continue to improve. Of the private sector DB plan sponsors considering adjustments to their plan design, funding policy or investment strategy, more than half (52%) indicate that they have prepared a “journey plan” of measures to contain cost and volatility.

“The 2008 crisis may have been the final straw for senior finance officers,” said David Service, Director of Towers Watson Investment Services. “While plan sponsors may not be able to afford to make changes right now, many are working on strategies to de-risk or even exit when the financial position of their plans improve.”

However, there may be some hope for traditional DB pension plans. With an aging population, a majority of survey respondents (59%) agree that employees will be showing a greater appreciation for DB pensions. The potential impact on attraction and retention is also a major concern for the majority (52%) of organizations that are considering plan design changes. “Canadian employees tell us that the prospect of a competitive pension is one of the top five factors that would influence them to leave their current employer, ” said Martine Ferland, Canadian Retirement Leader for Towers Watson. “As election rhetoric heats up the pension debate, we hope to see additional measures proposed that will increase the sustainability of private sector pensions.”

About the Study

These findings are part of Towers Watson’s 2011 Pension Risk Survey of Canadian defined benefit plan sponsors. With insight from senior executives at more than 150 organizations, the Pension Risk Survey is the most current and comprehensive study of DB pension plan management available today. The research builds upon seven previous pension risk surveys to provide organizations and governments with actionable insights on the current and future state of DB pension plans in Canada.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the web at