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Some providers are wondering whether they will be able to continue offering a pension plan as they scramble to make changes to their strategic asset allocations in an effort to pull through the recession. According to a survey conducted by the International Foundation of Employee Benefit Plans, the recession has forced both defined benefit plan sponsors and defined contribution plan sponsors to make changes to their retirement coverage and plan design. The survey found that the financial crisis has prompted 42% of defined benefit plan sponsors to make changes to their strategic asset allocation-more than double the 20% that reported having changed allocations six months earlier. Of the defined benefit plan sponsors that changed asset allocations as a result of the crisis, the most common changes were increasing fixed-income assets (37%), reducing U.S. equity allocations (17%) and increasing alternative fund investments (13%). “Six months ago, many retirement plan sponsors reported they were taking the long view of the situation,” said Sally Natchek, senior director of research at the International Foundation in Brookfield, Wis. “Now, employers seem to view the crisis as more severe. There’s been a jump in the number making changes to their offerings, categories of employees covered, asset allocations and employer matches.” The defined benefit plan sponsors are also reexamining whether to offer a pension plan. Twenty-seven percent have discontinued offering pension benefits for all or some employees, and 21% have closed their plans to new participants. Respondents from the corporate sector are the most likely to have implemented these changes, with 40% reporting they had discontinued offerings to some or all employees, and 34% stating they had closed their plan to new participants. As of May, 13% of defined contribution plan sponsors have changed their investment product offerings as a result of the crisis. That is almost double the 7% that reported executing changes six months earlier, according to the data. Of the 13% that have implemented changes, 21% added more low-risk investment choices, 18% increased diversification, 16% added life- cycle or money market funds, and 15% added government-backed options. Besides affecting investment offerings, the crisis is also having an impact on the employer match. Sixteen percent of defined contribution plan sponsors reduced or eliminated employer matches as a result of the economic situation. Of those that reported changing their match, 44% have reduced the amount of the match, and 52% have suspended the match altogether; corporations are the most likely to have taken this action. “Although the number of plan sponsors who have reduced or eliminated their employer match is relatively small, the number is still significant since any change tends to result in the employee lowering his or her contribution,” Natchek said. The ongoing crisis appears to be having a substantial impact on employee efforts to save for retirement. A large percent of defined contribution plan sponsors, 44%, report a decrease in participants’ overall amount of contributions. This is a sharp uptick since October 2008, when just 28% of plan sponsors reported this trend. Even more notable, 40% of defined contribution sponsors reported an increase in the number of participants completely stopping plan contributions. Hardship withdrawals and loans from defined contribution plans are also on the rise, with 42% of plan sponsors reporting an increase in the number of participants making hardship withdrawals, and 40% reporting an increase in those borrowing from retirement accounts. This is in contrast to six months ago when 29% of plans sponsors reported an increase in hardship withdrawals, and 28% indicated an increase in loans. “It’s important for employees to keep contributing to their 401(k) accounts to ensure a secure retirement. However, if the crisis continues, we’re likely to see these numbers increase even higher,” said Natchek. “This could have a potentially devastating impact on the retirement future of many Americans.” As the recession continues, it appears that employees’ main concern has shifted from retirement worries to anxiety about their job security. Plan sponsors report decreased job security as the major concern of their employees given the current crisis (48%). This is in contrast to six months ago when job security ranked fourth among major concerns at 34%, while delaying retirement topped the list. –msamaad@cutimes.com

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