Tips for Managing Pension Plan Expenses

Employers with pension plans seek to control costs. But what approach should they take? A recent report offers some suggestions.

In “Managing Pension Costs — Some Solutions Are Time-Sensitive,” PriceWaterhouse Coopers argues that controlling costs can best be accomplished by:

• understanding plan features;

• assessing the state of the plan;

• having a grasp of how willing the company is to accept and face risk; and

• being aware of when IRS regulations kick in and will affect various approaches to controlling costs that an employer may be contemplating.

Plans that consider de-risking should be sure to choose an option that will best serve the plan, the report stresses. Considerations in creating a plan to de-risk, it suggests, include:

• The total expenses required to maintain the plan, including costs for administration, investments and Pension Benefit Guaranty Corporation (PBGC) premiums;

• alternatives that could reduce risk;

• return on investment for eliminating pension risk as opposed to other ways in which the company’s human and financial resources could be spent;

• the impact of alternate strategies on company finances and accounting; and

• data available concerning beneficiaries.

Additional Cost Factors

The report also cites the change in mortality tables and its effect on lump sum calculations as a factor that will increase costs in the near future. The IRS will continue to use current tables in those calculations this year, but higher life expectancies will affect them starting in 2017. And PBGC premiums are another growing expense.