Retirement Programs an Increasing Challenge for Financial Executives

Hewitt Survey Reveals Short-Term Concerns Include Controlling Growth and Volatility of Plan Costs, Increasing Employee Education Efforts

LINCOLNSHIRE, IL, April 12, 2005 -- Add one more item to the growing list of concerns for today's financial executives - their companies' retirement programs. A new survey conducted by Hewitt Associates, a global human resources services firm, reveals that the most pressing retirement plan challenges for financial executives in managing their companies' retirement programs include growth/volatility of costs, global plan needs and improving their employees' ability to retire.

Sixty-five percent of 200 financial executives surveyed said their top priority for the next two years will be to identify ways to control the growth in retirement costs, and almost half (49 percent) say they will focus on reducing pension cost volatility. Fifty-nine percent said they plan to step up efforts to educate their employees about the need to save for retirement, and 30 percent said they will take initiatives to better manage their retirement plans globally.

"In addition to growing cost pressures and complying with stricter governance and accounting standards, a shifting demographic workforce and legislative uncertainties are making retirement programs even more difficult to manage," said Ari Jacobs, a global retirement consultant at Hewitt Associates. "Many financial executives are struggling to find effective ways to address these challenges and still provide competitive retirement programs that meet the needs of their business, as well as their employees."

Retirement Plan Management: Employer Priorities

According to Hewitt's survey, only 30 percent of financial executives said they are confident their workers will retire with sufficient retirement assets, yet over 70 percent believe that employees' ability to retire is connected to their organization's ability to manage its workforce effectively.

As such, financial executives said they planned on taking some steps toward improving employees' saving and investing habits in the next two years: Almost 60 percent said they plan to increase employee education about the need to save for retirement, and 57 percent said they will increase education about asset allocation and diversifying 401(k) plan balances. Almost half of financial executives (49 percent) also said that lowering the amount of 401(k) investment management fees their employees pay will be a priority.

Of those companies that offer defined benefit pension plans, the majority (60 percent) said they did not expect to make any significant changes in the short term. A minority (16 percent) said they planned to close their defined benefit plans to new employees.

Of those offering retiree medical benefits, most (approximately 70 percent) said they plan to increase cost sharing with current and future retirees in the next two years. More than half (53 percent) plan to reduce retiree benefits.

Retirement Plan Challenges: Taking Control

Despite the political, legislative and economic uncertainties in the retirement industry, Hewitt's Ari Jacobs says there are opportunities for financial executives to take more control of the challenges associated with their retirement programs, including:

• Develop investment and funding strategies that take into account the trend and magnitude of future retirement costs. Learn what cost drivers may be controlled through alternative design and financing strategies.
• Align retirement programs with global business strategies and objectives. If you haven't yet determined goals for your retirement program, do so.
• Establish global governance practices and objectives around the design, financial management and delivery of your retirement programs. This provides you with a consistent and holistic framework that can be executed at a local level.
• Assess the impact of proposed changes in funding and accounting rules. Make sure you have a structure in place for effectively communicating these changes across your organization and with investors. Be prepared to lobby against proposals that negatively impact business results.
• Make a concerted effort to break down the silos that exist between the finance and human resource departments. Although retirement responsibilities may be divided, it's important that finance works closely with HR to develop an overall, integrated retirement plan strategy that effectively supports your company's talent management and retention strategies.
• Review the delivery of your programs, including communication and administration, to ensure that it enhances, not detracts from, the value of your retirement program. Assess your processes to determine whether they truly enable your employees to make informed decisions.

"We see an increasing number of financial executives concerned about the impact of current and future retirement trends to their overall business, especially in the areas of managing costs and volatility," said Jacobs. "While it's difficult to predict the different variables and outside factors that may influence retirement programs in the future, financial executives can take pre-emptive steps that will enable them to gain more control and act quickly as the retirement landscape continues to change."

About Hewitt Associates

With more than 60 years of experience, Hewitt Associates (NYSE:HEW) is the world's foremost provider of human resources outsourcing and consulting services. The firm consults with more than 2,300 companies and administers human resources, health care, payroll and retirement programs on behalf of more than 300 companies to millions of employees and retirees worldwide. Located in 35 countries, Hewitt employs approximately 19,000 associates. For more information, please visit www.hewitt.com.

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