NEW YORK, August 24, 2005 – Nearly three-fourths (73 percent) of large employers with a defined benefit pension plan report that their number-one concern with maintaining it is expense and funding volatility. At a time when the debate over pension reform is focused on changes that will reduce employers’ ability to smooth cost changes—thereby increasing volatility—they are feeling pressures for sustaining employee pension plans.

“Virtually everyone who is proposing changes to pension rules is suggesting changes that will increase cost volatility,” said Steve Metz, principal in PricewaterhouseCoopers’ human resource services group. “So, if volatility is a major factor driving employers away from pension plans and the rules are changed to increase it, well, you do the math.”

What’s Next?

Most companies (67 percent) that have made a change in their plan over the past three years, or are contemplating one, have considered freezing it or closing it to new hires.

And, nearly half (46 percent) of those expecting to make changes over the next 12 months report they will consider axing their plan.

“About seven out of ten large U.S. multinationals in the survey that are considering making changes to their plan are considering terminating it or freezing all benefit accruals,” said Metz.

An Unsettled Climate

More than half (54 percent) of companies with a defined benefit pension plan have recently changed it, or are currently considering a change:

• 38 percent made a change over the past three years

• 16 percent are considering a change over the next 12 months

• 6 percent say change is pending external factors, such as an increase in interest rates

Reasons for Change

Employers making changes to their defined benefit plan over the past three years, or considering doing so, have been motivated primarily by escalating costs and funding volatility:

Increased costs	85%
Volatility of funding or expense	64%
Accounting requirements	30%
Competitors' actions	18%
Government regulations	18%
Employee acceptance	9%
Other reasons (volunteered)	3%

New Hires Locked Out

Changes made over the past three years have most often involved closing the plan to new hires (cited by 67 percent), and freezing the plan (63 percent). Also, 30 percent have reduced benefits prospectively, for example, lowering the plan multiplier from 1.5 percent to 1.25 percent.

Three in four companies that made changes (75 percent) protected current employees. Fifty-nine percent adjusted benefits only for future hires, and 48 percent grandfathered in certain employees based on age or service. A few (15 percent) provided additional “transition” benefits, and 11 percent gave all employees a choice between the old and revised plans.

“Employers have expressed concern that lack of pension benefits for new hires may ‘lock-in’ some employees at their current job,” said Metz. “As a result, employees in certain age and service categories may find that giving up their pension makes it too expensive switch jobs.”

PricewaterhouseCoopers’ “Management Barometer” is an established quarterly survey in the U.S. These surveys are developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.

PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services for public and private clients. More than 120,000 people in 144 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders. “PricewaterhouseCoopers" refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Direct questions about Management Barometer to Pete Collins, survey director and publisher, at 646-471-4496 or e-mail to: pete.collins@us.pwc.com.

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