Pension Trends   Volume VII, No. 1, February 2006    

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In this issue...

Worlds Apart: Way, Way Apart
100 Best in Oregon
 

Worlds Apart: Way, Way Apart

January brought another spate of bad news for defined benefit plans. IBM, Verizon, Sprint, and others all announced that they were abandoning their defined benefit plans in favor of enhanced 401(k) plans as the primary retirement plan for future workers. They are joining an exodus of large plan sponsors who have decided they can no longer live with the accounting costs and funding volatility that tend to accompany these large defined benefit plans.

Had the newspapers interviewed us, on the other hand, the news would have been quite different. We helped 45 small to medium size businesses set up new defined benefit plans in 2005. (This is in addition to 12 existing defined benefit plans for which we took over the responsibility as actuary.) That works out to an average of almost four new defined benefit plans per month, and we had similar results in 2004! In fact, our business has grown 63% since 2002.

What gives? Are defined benefit plans dying or are they enjoying a renaissance?  The answer depends upon your universe – the world of large, generally publicly traded companies, or the world of small to medium size business owners.

For owners of small to medium sized businesses, defined benefit plans offer many advantages over any other form of saving for retirement, but of late two advantages have stood out: the ability to accumulate a large retirement nest egg in a short period of time, and the assurance of knowing your retirement goal will be reached.  Only a defined benefit plan can provide those advantages.

Where else can a business owner set aside $100,000 to $200,000 or even more on a tax deductible basis into a tax exempt trust to accumulate funds for retirement? The short and complete answer is nowhere else. In a 401(k) plan, stock market ups and downs can mean my retirement nest egg is there one day, and gone the next. In a defined benefit plan, my nest egg at retirement is a set (defined benefit) amount, assuring that I will be able to retire at the intended time with the intended amount of financial security.

What’s more, the employees of these small to medium sized businesses enjoy the same assurances as the business owner. They do not have to bear the investment risk that workers in 401(k) plans do. They have an employer-paid retirement benefit to add to their own savings and social security to provide them with financial security in retirement.

What is truly unfortunate is that because of funding volatility, skyrocketing financial accounting costs, and other reasons, many large employers no longer feel they can offer their employees the advantages of a defined benefit plan and stay competitive.  As this article is being written, both houses of Congress have passed pension reform bills which will add to the cost and uncertainties associated with maintaining a large defined benefit plan.

At the same time, in our marketplace, we expect to add as many or more defined benefit plans in 2006 as we did in 2005. Defined benefit plans work the way they are supposed to for our clients.

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100 Best in Oregon

Oregon Business magazine recently announced that Independent Actuaries, Inc. has been voted one of the 100 best companies to work for in Oregon for 2006. We are very pleased and proud of the award. We believe this achievement reflects our commitment and respect for each other as employees which in turn leads to our exceptional commitment and respect for our clients.

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This newsletter has been published in order to share general information with our professional contacts. The information presented in this newsletter should not be acted upon without first seeking the advice of a CPA, attorney or other benefit professional.