Life insurers are forecasting significant reductions in 2009 merit raise budgets.

The finding conflicts with forecasts made by life insurers in July, according to Corporate Compensation Strategies L.L.C., Wilton, Conn.

The firm surveyed 31 large life insurers.

The industry has been averaging annual merit raises of about 3.5% for the past 5 years, CCS says.

For employees below the officer level, the median merit pool was forecast to be 17% lower than what was anticipated in July.

About 26% of the insurers polled said they are considering eliminating officer merit increases altogether.

About 20% are taking a wait-and-see approach, but many of these are expecting further cuts in their merit budgets from previous forecasts.

“While in the past many companies have shifted dollars to variable bonus plans to offset lower merit increases, we think it unlikely [this year], given the financial uncertainty at this time,” says Ron Contino, a principal at CCS.