Chicago-based Aon Corp. recently announced proposed changes to its U.S. and U.K. defined benefit pension plans to maintain competitive retirement benefits for its employees while reducing future pension costs, according to the company release. Changes to the pension plans will not affect pension plan benefits earned by participants prior to the effective date of the changes.
Effective Jan. 1, 2007, future benefits in the company’s U.S. defined benefit pension plan will be calculated based on a “career average pay” formula instead of a “final average pay” formula. The change is anticipated to affect approximately 11,000 active employees covered by the U.S. plan. The U.S. plan was closed to new entrants effective Jan. 1, 2004.
For its U.K. defined benefit pension plans, Aon is proposing to cease crediting future benefits relating to salary and service, subject to trustee approval and member consultation. The proposed change would affect approximately 1,700 active employees and is anticipated to take effect during the first half of 2007. Subject to approval of the trustees, it is proposed that the future pension provision will be provided under the defined contribution section of the Aon U.K. Pension Scheme. The U.K. defined benefit plans were closed to new entrants effective Jan. 1, 1999.
“We believe these changes will help Aon better manage its overall future compensation cost structure,” said Greg Case, Aon president and chief executive officer. “Over the last five years, Aon has contributed more than $1.1 billion to fund retirement benefits for participants in the U.S. and U.K. 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.”
These proposed changes are expected to result in annual expense savings of approximately $60 million. Actual 2007 pension expense will depend upon a number of measurement date factors which are used to calculate pension cost, 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 U.K. plans. The Company is adopting FAS 158 and changing the measurement date of its U.S. and U.K. pension plans to Dec. 31 effective at year end 2006.
Aon Corp. identifies itself as a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting.
Source: Aon Corporation