US insurance firm Aon has proposed changes to its pension plans in the UK and the US in an attempt to maintain competitive benefit plans and reduce pension costs for its employees.
Changes will take effect on January 1, 2007 in the US whereby the benefit pension plan will be calculated based on the average pay of the career rather than from the final average pay. These changes are expected to affect around 11,000 active employees covered by the US plan.
In the UK, Aon has proposed to terminate crediting future benefits relating to salary and service, subject to trustee approval and member consultation. This change is anticipated to affect approximately 1,700 active employees. Subject to approval of the trustees, the proposed changes will be provided under the defined contribution section of the Aon UK Pension Scheme.
We believe these changes will help Aon better manage its overall future compensation cost structure, said Greg Case, Aon president and CEO. Over the last five years, Aon has contributed more than $1.1 billion to fund retirement benefits for participants in the US and UK plans. These plans will continue to provide competitive retirement benefits for our employees, however, merit-based reward programs will receive an increasing portion of company contributions going forward.
The proposed changes are forecast to result in annual expense savings amounting to $60 million, depending on a number of factors including interest rates, foreign exchange rates, asset levels, asset return expectations and mortality assumptions, as well as the timing of implementation of proposed changes to the UK plans.