DB, DC Plans Changing Investing Composition

As the financial crisis continues, employers are beginning to take action with regards to their pension or 401(k) plans, according to the International Foundation of Employee Benefit Plans.

“Six months ago, many retirement plan sponsors reported that they were ‘taking the long view’ of the situation,” said Sally Natchek, senior director of research at the foundation. “Now, employers seem to view the crisis as more severe. There’s been a jump in the number makingchanges to their offerings, categories of employees covered, asset allocations and employer matches.”

Among DB plans, 42% have changed their asset allocation, up from 20% who had done so six months ago in October. Most commonly, they are increasing their allocation to fixed income assets (37% are doing so), followed by reducing U.S. equity allocations (17%) and investing in alternative securities (13%).

Further, 17% of DB plans have discontinued offering pension benefits to all or some employees, and 21% have closed their plan to new participants.

Among DC plans, changes are not as common, but they are being made. Thirteen percent have changed their investment product offerings, up from 7% who had done so as of October. In this group, 21% have added lower-risk investment choices, 18% have increased diversification, 16% have added target-date funds and 15% are now offering government-backed options.

Further, 16% of DC plans have reduced or eliminated employer matches as a result of the economic situation. Of this group, 52% have eliminated the match altogether.

“Although the number of plan sponsors who have reduced or eliminated their employer match is relatively small, the number is still significant since any change tends to result in the employee lowering his or her contribution,” Natchek said.

Forty-four percent of DC plan sponsors have noticed employees decreasing their contributions, up from 28% who did so in October.

“It’s important for employees to keep contributing to their 401(k) accounts to ensure a secure retirement,” Natchek said. “However, if the crisis continues, we’re likely to see these numbers increase even higher. This could have a potentially devastating impact on the retirement future of many Americans.”