Aon Hewitt: Corporate plans eyeing jump through lump-sum window

More than one-third of corporate defined benefit plan sponsors are considering lump-sum payouts this year for retirees and vested former employees, up from 7% last year, according to a new survey by Aon Hewitt.

The survey also found an increase in liability-driven investing.

“We think 2013 will be the year when many more (plans) actually implement large-scale actions such as offering lump-sum windows,” said Rob Austin, Aon Hewitt senior retirement consultant, in an interview.

Factors influencing that trend include premiums to the Pension Benefit Guaranty Corp. nearly doubling this year and next, the phasing out of premiums on lump-sum payments, and fewer regulations governing the offerings made to retirees and former employees. For other sponsors not ready to consider lump-sum payments, low interest rates were the main factor, Aon Hewitt found.

While the percentage of sponsors planning to conduct asset-liability studies remained constant at roughly 50%, the number of them doing more liability-driven investing “is higher than we've seen in years past,” Mr. Austin said. “We know that derisking the pension plans is the biggest thing for them.”

The survey found that while just 18% of underfunded plans use a glidepath strategy for derisking, the percentage could grow to 30% by the end of 2013. Also, plan sponsors favoring a majority equity strategy will shrink to 31% from 52% currently, as they focus more on their overall funded status, rather than just liabilities or assets, Aon Hewitt found.

Of the 230 employers in the latest survey, 17% were considering closing their plans to new entrants. The survey also found that 84% of employers are not planning to change benefit accruals for current workers.