The View from the Board on Compensation and Benefits

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The View from the Board On Compensation And Benefits The specter of government control of employee benefits loomed over the Compensation and Benefits Review Advisory Board's discussion of major topics concerning compensation and benefits managers.

In a recent meeting of the Compensation and Benefits Review advisory board, members discussed issues in compensation and benefits today. The most pressing of these were the impact of federal regulation on retirement plan design, the complexities of Section 89 nondiscrimination rules, mandated benefits, cost of retiree health benefits, and pay for performance. Hermine Zagat Levine, editor of Compensation and Benefits Review, posed the questions.

The Impact of Legislation on Retirement Plans Levine: In your suggested topics for discussion, you indicated interest in legislation on pension and benefit plan design. Among the questions you might want to address are these: What has been the impact on employers of the five-year pension vesting legislation? How are other aspects of pension reforms affecting pension planning, and is there a noticeable shift from defined-benefit to defined-contribution plans? Massey: Our company considered switching from our current defined-benefit pension plan to a defined-contribution plan because we felt that the defined-benefit plan was almost an anachronism, that employees just don't appreciate it; it's hard to understand, and it's very difficult to communicate. It was set up years ago for a workforce and management team that's different from the current one--a workforce that was much less mobile. We found, however, that our plan was so overfunded and the government has imposed so many financial restrictions on asset reversions that it was much more cost effective to just change actuarial assumptions to eat up the excess funding. At some point in the future, when we have to again start making contributions, we'll probably look at setting up a totally different plan. Baker: We're changing from total dependency on a defined-contribution plan to a combination of plans. We're looking at, and hopefully will have approved in the near future, a defined-benefit plan. We have a very young workforce that averages 34 or 35 years old, with probably four years of service. When 401(k) plans became popular around 1982-1983, we decided that was the real vehicle for us. We needed a program that had portability, and the 401(k) plan provided that. Unfortunately, tax reform, the nature of the October crash, and the feeling among some of our employees that Social Security may not be there when they want to retire, all have given us the impetus to provide the third part of the traditional three-legged stool--the defined-benefit plan. We look upon our plans as two-featured, with the 401(k) taking care of the employees who turn over in the first five years of their corporate life, and the defined-benefit plan kicking in after that five-year period. Kardos: As a company that's had defined-benefit and defined-contribution plans for a long time, we've been looking at both of them. We find employee education's necessary so that employees understand what all three parts of the retirement stool will mean to them. They have come to rely on the defined-benefit plan to really provide them with their retirement benefits. They have never viewed the defined-contribution plan as a long-term savings vehicle. We're trying to find ways to encourage employees to continue long-term savings and will probably put in various suspensions and things of that nature so they can understand the importance of the personal savings side. Beadle: I find plan sponsors to be of two minds. The dichotomy comes, I think, from the fact that plan sponsors really do believe a defined-benefit plan is a better way to go for retirement security. But the defined-contribution plan has some advantages--or, at least, fewer disadvantages--in the current environment. As a result, the hybrid or "cash balance" plan is getting some attention. …