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More Employers May Drop Pension Plans

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About 17% of employers with fully operating defined benefit pension plans may close the plans as a result of provisions in the new Pension Protection Act.

Researchers in the Stamford, Conn., office of Towers Perrin Inc. have published those results in a summary of an informal survey of 126 high-level financial executives at large U.S. employers.

The PPA has increased the minimum plan funded ratio to 100%, from 90%.

About half of survey participants say they expect their companies to offer similar pension benefits once the PPA provisions take effect, but, in addition to the 17% who say their companies will be closing their plans, 14% say their companies will freeze benefits for current participants or continue plans but reduce future benefit accruals.

Only 10% of the executives expect the PPA to result in big increases in required pension plan contributions, but those executives are expecting an average increase of 26% or more, according to the Towers Perrin researchers.

About a quarter of the participants say their companies will try to use bonds to comply with new PPA plan funding requirements, and another quarter plan to use derivatives or other risk mitigation techniques, the researchers report.

Only 5% say buying annuities is a potentially viable funding approach, the researchers report.