Many Companies with Frozen Pension Plans Come One Step Closer to Plan Termination, Says Aon Consulting

Change in Investment Strategy Signals the End for These Pension Plans

CHICAGO, May 7 /PRNewswire-FirstCall/ -- Many companies with frozen pension plans are intending to change their investment strategy in the near future, reducing corporate pension expense volatility and placing themselves one step closer to plan termination, according to a new survey by Aon Consulting, the global human capital consulting organization of Aon Corporation (NYSE: AOC).

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Aon Consulting surveyed more than 70 U.S. organizations, with a cumulative total of frozen pension plan assets of over $50 billion, and found that 81 percent are planning to change their investment strategy in the near future, with many looking to hedge significant risks (35 percent), change investments to reflect the shorter investment horizon to termination (27 percent), or move to a more liability-driven-investment strategy (19 percent).

"The majority of plan sponsors want to terminate their frozen plans quickly, but don't have sufficient assets to do so," said Cecil Hemingway, U.S. Retirement Practice Leader with Aon Consulting. "Survey participants told us they made the design changes associated with closing their pension plans (soft freeze) or ending future benefit accruals (hard freeze). However, without addressing the investment paradigm, they are leaving themselves open to significant future risk. Those shifting investment strategies are addressing the risks still inherent in their pension plans, while getting their plans as well funded as quickly as possible."

Beyond modifying the pension plan's investment strategies, 68 percent of those surveyed have reviewed the expected future cash needs associated with their pension plans and found that additional cuts, outside the pension plan, will likely need to be made. Interestingly, many organizations plan to make cuts in the areas of hiring and training (both new and existing staff) to address these needs.

Conversely, this survey revealed that 19 percent of organizations currently do not have plans to revise their investment strategies as a precursor to plan termination. Instead, these companies are retaining their current investment structure or moving away from a low-risk, low-volatility structure in an attempt to capture some of the gain they believe will come about in the near future.

"Companies that continue to invest the way they always have will continue to experience considerable volatility in both their accounting expense and contribution requirements, which can equal millions of dollars in lost assets," said Hemingway. "Investment strategies that reflect the special nature of a frozen plan's liabilities and the organization's ability to take risk can be used to mitigate that volatility and assist plan sponsors with their desire to safely fund these plans.

"Ultimately, plan sponsors of frozen pension plans have to decide whether they want to terminate their plan, start it up again, eliminate or mitigate accompanying risk, or change the benefits provided under the program. Without a plan, it's highly unlikely that companies will be happy with their pension plans five years from today, and will instead be thinking about what they need to do in order to address the funding shortfalls and economic drain of the plan since it still exists and still has not been addressed."

To learn more about Aon Consulting's Ready 2012 survey findings, please click on the following link http://insight.aon.com/?elqPURLPage=3764.

About Aon Consulting

Aon Consulting Worldwide is among the top global human capital consulting firms, with 2008 revenues of $1.358 billion and more than 6,300 professionals in 117 offices worldwide. Aon Consulting works with organizations to improve business performance and shape the workplace of the future through employee benefits, talent management and rewards strategies and solutions. Aon Consulting was named the best employee benefit consulting firm by the readers of Business Insurance magazine in 2006, 2007 and 2008. For more information on Aon, please visit www.aon.mediaroom.com.

About Aon

Aon Corporation is the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting. Through its more than 37,000 colleagues worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Aon's industry-leading global resources and technical expertise are delivered locally through more than 500 offices in more than 120 countries. Named the world's best broker by Euromoney magazine's 2008 and 2009 Insurance Survey, Aon also ranked highest on Business Insurance's listing of the world's largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008. A.M. Best deemed Aon the number one insurance broker based on brokerage revenues in 2007 and 2008, and Aon was voted best insurance intermediary, best reinsurance intermediary and best employee benefits consulting firm in 2007 and 2008 by the readers of Business Insurance. For more information on Aon, log onto http://www.aon.com/.

     Media Contact:     Joe Micucci     312-381-4786     [email protected] 

SOURCE Aon Corporation