Updated with correction
A new pension plan design that allows employers to drastically reduce their risk while still providing lifetime income to participants is gaining support as an alternative to moving employees into a defined contribution plans.
The adjustable pension plan was conceived by executives at Cheiron Inc., originally for multiemployer plans and adapted for single-employer plans by Richard Hudson, principal consulting actuary at Cheiron in New York. Its key difference from a traditional DB plan is that the benefit received each year is adjusted from an original multiplier based on the previous year's investment performance.
The plan design shares the investment risk between employees and employers while providing more retirement income security than a typical defined contribution plan.
Earlier this month, Consumers Union, Yonkers, N.Y., reached a collective bargaining agreement with the Newspaper Guild of New York to create an adjustable pension plan that will replace the standard DB plan for guild members. The existing plan had about $42 million in assets as of Dec. 31, 2011, according to the company's most recent Form 5500 filing. That plan will be frozen on May 31, and contributions to the adjustable plan will start June 1.
Consumers Union, publisher of Consumer Reports, is the second single-employer plan to switch to the adjustable plan. Last November, The New York Times became the first with its $280 million plan for employees who belong to the newspaper guild.
The very first adopter of the adjustable plan was the Greater Boston Hospitality Employers Local 26 Trust Funds. The multiemployer plan adopted the new design on Jan. 1, 2012, moving from a 401(k) to a pension plan to provide more retirement security, according to a document on the union's website. Under its plan, participants will receive either a guaranteed floor benefit or the adjustable benefit tied to investment performance, whichever is greater. (The 401(k) plan, which had $35 million as of June 30 according to its latest 5500 filing, is still open, but there no longer is an employer contribution.)
The first APP was developed by Cheiron executives working with David Blitzstein, special assistant for multiemployer funds at the United Food and Commercial Workers International Union; Skip Halpern, president of Gallagher Fiduciary Advisors LLC; and Barry Slevin, president of law firm Slevin & Hart PC.