NEW YORK -- While companies haven't been making changes to their retirement plans in recent years, a new study by Towers Perrin indicates now might be the time.
The most significant change in the near future might be in the use of employee stock ownership plans and cash balance plans, according to the study, "Benefit Effectiveness Index: The Changing Role of Employee Benefits in Today's Evolving Business Environment."
The change in retirement programs is slowest in Brazil, Germany and the Netherlands, where 32% of corporate managers reported making changes in retirement plans.
Hesitation at high levels
A total of 850 managers and 3,750 employees in seven countries -- Brazil, Canada, France, Germany, the Netherlands, the United Kingdom and the United States -- were interviewed in the study.
"What I have learned is that senior management is very hesitant to change retirement plans," said Martha Sherwood, a principal in Towers Perrin's New York office and one of the authors of the study.
Ms. Sherwood added many employees, mainly older employees, would be better off if retirement plans remained the same.
One trend that may benefit employees both young and old is the use of employee stock options. Ms. Sherwood predicts an increase in the use of company stock as a benefit to employees in the next three to five years. Employee interest in the future may be piqued because of the bull market, Ms. Sherwood said.
"It's a real challenge for corporations to create interest and excitement when company stock is not doing well," she added.
More than half of the managers (53%) and 65% of employees responding to the survey said stock ownership can have a favorable impact on employee commitment to company success.
The same number of managers said their companies' retirement programs reinforce shared responsibility between employees and the company. Ultimately, company performance could also be a factor in contributions. Forty-nine percent of employees surveyed agreed companies could adjust their contributions to savings and retirement accounts based on performance.
Portability is also emerging as an important issue for both employees and employers.
Ms. Sherwood characterizes the current situation at many companies as a tug of war between designing plans for a new, younger workforce or continuing to respond to the needs of employees who have worked there for many years. She concludes that growing competition and demand for skilled workers might force some retirement programs catering to older generations to modernize.
Fueling this trend, many younger workers don't expect to have enough in pension benefits for retirement. Only 42% of workers interviewed were confident about their retirement income, and 29% said they would be willing to accept smaller raises in return for increased retirement benefits.
Concern over retirement income is even worse in countries with ailing social security systems. In France and Canada, less than 20% of workers said they expected the government system would be able to pay social security benefits when they retire.
As a whole, the study concludes that industrialized countries increasingly will depend on private, employer-sponsored retirement plans and individual savings because they have aging populations that put a strain on government benefits, the study says.
Lack of understanding
Employees are even less confident about how well they understand their retirement needs.
"I'm very troubled by the continued survey data I get back on how ill- prepared employees are," Ms. Sherwood said.
Only half of the employees interviewed said they understood their financial needs in retirement, with the worst response from French employees (27%).
Only 55% of employees reported understanding their financial retirement needs; 18% were mixed, and 27% said they didn't know.
Respondents are more unsure about investments and need more education, according to Ms. Sherwood.