More Employers Plan to Offer Lump-Sum Pension Payouts

Lincolnshire, Ill. — Feb. 13

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. Now, a new survey by global human resources firm Aon Hewitt finds that more employers plan to follow suit in 2013.

Aon Hewitt surveyed 230 U.S. employers with defined benefit plans, representing nearly 5 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.

The 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, according to the survey, 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 participants, the survey found.

As a first step in their broader efforts to mitigate risks, 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, the survey said, 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.

The survey also 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.

Source: Aon Hewitt