Apparently, Bob Dylan was right after all.
The times are changing - at least for U.S. retirement plans - as employers attempt to cope with the shifting demands of their employees.
That's one of the findings of a recent survey conducted by William M. Mercer Investment Consulting Inc., Deerfield, Ill. In the survey, 70% of employers acknowledged making changes to their retirement plans in the past two years. Additionally, 43% of the respondents have one or more changes planned in 1998; approximately 41% have no further plans to make changes. Only 16% of respondents have neither made recent changes nor plan to do so.
Of the approximately 750 plans surveyed, Mercer received 334 responses; about 30% of the organizations responding had 1,000 employees or less, while 39% had between 1,000 and 5,000 workers. The rest of the respondents employed more than 5,000 people.
Shifts in investment options
According to the Mercer study, the most common change made by respondents is the addition or alteration of investment options.
That also is the retirement plan feature most likely to be changed during the next year. Of those companies responding, 48% said they have made recent changes or additions to their investment options, and 21% said they plan to do so. One-fifth of the employers said they've made changes to eligibility requirements, with an additional 5% planning more changes to the requirements. Almost one-fifth of those surveyed also planned to change their pension benefit formula, as well as merge the benefits of different or new subsidiaries.
"I found it interesting (in the survey results) the number of employers, primarily larger ones, that are starting to view their retirement plans as part of their total compensation package," said Mark Rowles, a senior retirement consultant at Mercer's San Francisco office. "It's an interesting trend that I think we see evolving, although forward-thinking companies have done this for some time."
A new kind of 'relationship'
With low unemployment levels and a wider market of job opportunities, employers are casting their retirement plans as part of their working "partnership" with their employees. Almost two-thirds of employers viewed their retirement program as "a partnership to meet the needs of retirement security." More directly, about 18% of the respondents view their retirement benefits as "reward for long service;" approximately 10% see it as a form of indirect compensation. Retaining employees was cited by 43% of respondents as the most common business objective for their retirement plans.
Sixty-one percent of respondents offered a defined benefit plan, the majority being employer-pays-all plans; only 5% offered a defined benefit plan that included employee contributions. An overwhelming majority - 88% - of companies offered a defined contribution plan, with 79% of those including an employer contribution.
Mercer also found the link between retirement benefits and company performance is becoming less common among the nation's employers.
Only one-third of the companies in the survey directly linked retirement benefits to their firms' performances; among this group, 47% of companies chose to do so by the inclusion of a profit-sharing feature in their 401(k) plan.
And with the growth of defined contribution plans has come a greater demand for improved employer/employee communications on retirement benefits. Almost two-thirds of respondents - 63% - say they plan to "increase employee communications", while an additional 33% say it's "somewhat likely" they'll do more communicating with their employees.
"Communication programs are evolving within the total compensation concept," Mr. Rowles explained. "Gone are the days when an employee didn't really know what his retirement benefits were until he actually retired. Starting with the popularity of 401(k) plans, the demand for more communication has continued to grow. As people assume more responsibility for their retirement benefits, they demand a higher level of information on their options."
Communication needed for DB
Robert Scott, deputy executive director for the $19 billion Colorado Public Employees' Retirement Association, Denver, concurred. "I certainly believe communication is extremely important, whether it's in terms of defined benefit or defined contribution plans," he said. "In DC plans you give the employee responsibility for asset allocation, so education and communication are very important. But in DB plans, there is sometime an assumption that, well, a defined benefit is defined benefit and you don't require much communication. I think that's totally wrong. We're very big believers in the importance of communication, regardless the type of retirement plan."
The fund's retirement benefit communication includes a range of methods, according to Donald Schaeffer, a fund spokesman. "We have two semi-annual magazines that are sent out to members, which include retirement and financial education articles," he said. "In addition, we also hold a variety of types of information meetings around the state, outlining benefits and answering questions. We've also started doing some group counseling for members tackling individual issues regarding benefits and qualifications."
Mr. Rowles added that in high-tech areas, such as California's Silicon Valley, there is an increasing focus on the use of technology as a means of providing retirement plan information. "Using the intranet and Internet can provide for both a higher and better level of communication," he said. "Even in terms of production, the new technology can change the way you communicate. It can cost thousands of dollars for a brochure explaining your benefits, and one good plan amendment can make the brochure obsolete. Whereas, it's much more efficient and quick to simply make the same change on your electronic monitor."
The increasing number of mergers and acquisitions also is having an impact on retirement plans. Almost one-third of the survey's respondents said they either "have merged or plan to merge" the benefits of different divisions or new subsidiaries. As well, 22% of those surveyed said they were considering change in their retirement plans because of "undergoing a merger/acquisition/divestiture."
"Mergers and acquisitions are very hot now," explained Mr. Rowles. "It used to be, in the late 1960s and early 1970s, that two CEOs shook hands and the merger was done. Today, the buyers and sellers are much more sophisticated and what used to be considered 'smaller issues,' such as retirement plans, have taken on greater prominence during merger talks. So, it's not surprising that changes in the plans track the greater changes in the mergers and acquisition markets."
Mr. Rowles added that as the market rides "the tail end of an aging bull" further changes might be forthcoming as retirement plans mirror the economy's performance; additionally, the prospect of considerable regulatory changes has the potential to pose significant challenges for retirement plans and their providers in the years ahead.