Retirement Plan Landscape Stabilizing as Fewer Fortune 500 Companies Shifting Defined Benefit Plans to 401(k)s, Towers Watson...
05 September 2014 - 12:33AM
Business Wire
Insurance, utilities sectors buck trend away from traditional
pensions to DC plans
The retirement plan landscape is stabilizing as fewer U.S.
companies last year moved from defined benefit (DB) plans to
offering only a defined contribution (DC) plan to new salaried
employees than in any other year over the past decade, according to
a new analysis by global professional services company Towers
Watson (NYSE, NASDAQ: TW). The analysis also found that a few
industry sectors — insurance and utilities — are bucking the trend
from DB to DC plans. More than half the companies in these sectors
still offer DB and DC retirement plans to new salaried
employees.
The Towers Watson analysis found that only 118 Fortune 500
companies (24%) offered any type of DB plan to new hires at the end
of 2013, down from 299 companies (60%) 15 years ago. Among these
companies, 84 offered a hybrid plan, and 34 offered a traditional
plan. While the number of Fortune 500 companies with open DB plans
reached a record low in 2013, the number of companies (five) that
moved away from DB plans last year is the lowest number that
shifted to DC plans in more than 10 years. Moreover, nearly half of
Fortune 500 companies that no longer provide DB benefits to new
hires still have active employees who are accruing benefits.
While traditional pension plans have taken the hardest hit
during the shift from DB to DC plans over the past 15 years, hybrid
pension plans have held relatively steady. Half of the employers
that sponsored a DB plan maintained a hybrid plan — typically a
cash balance plan — during that period. More than half (57%) of
employers that established a hybrid plan either before or after
1998 still offered a hybrid plan to new hires in 2013.
Retirement plan sponsorship trends,
1998 – 2013*
1998
1999
2000 2001 2002
2003 2004 2005
2006 2007 2008 2009
2010 2011 2012
2013 Total DB 299 296
294 290 285 277
263 242 224
202 185 171 151
139 123 118 plans
Traditional 251 236 228 206 187 169 157 138 125 105 88 75 57
48 39 34 DB plans
Hybrid DB 48 60 66 84 98 108 106
104 99 97 97 96 94 91 84 84 plans
DC plan 195
200 202 206 212 220 234 256 275 297 315 329 349 361 377 382 only
*Numbers indicate plans offered to new
salaried hires at the end of each year.
“With DC plans steadily becoming the primary retirement vehicle
for millions of workers, more responsibility and risk is being
shifted to employees,” said Alan Glickstein, senior retirement
consultant at Towers Watson. “Employees must increasingly take
ownership of managing their own contribution levels, investments
and distributions. The move also carries risks for employers, such
as having workers delay retirement when market performance is poor,
which in turn can result in higher benefit costs and less mobility
within their organizations.”
The analysis also found that certain sectors – utilities and
insurance, for example – are retaining their pension plans. Among
insurance companies, 66% offer a pension and DC plan to new hires
while 59% of utilities do so. Additionally, utilities tend to have
lower turnover and more long-term career workers than other
sectors.
The insurance sector includes mutual insurance companies that
are not publicly traded, and these companies face different
external pressures and have different objectives from other
industries. Additionally, due to the nature of their work,
insurance industry employees may be more inclined to understand and
appreciate DB plans than workers in other sectors.
The analysis also noted that DB plans are not a
one-size-fits-all solution. The high-tech, services and retail
sectors have historically had low DB sponsorship rates, and DC
plans are likely a better fit for their business needs. In fact,
overall DB plan sponsorship for these sectors never exceeded
36%.
“It’s noteworthy that DB plans still serve certain industries
and companies well, especially those with particular talent and
retention needs. At the same time, the broader shift from DB to DC
is helping fuel growing concern over employees’ ability to retire
comfortably. As a result, employers will need to carefully consider
their overall retirement plan strategies to make sure whatever
plans they offer new employees will help them with their retirement
readiness efforts and align with their expectations,” said Kevin
Wagner, senior retirement consultant at Towers Watson.
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global
professional services company that helps organizations improve
performance through effective people, risk and financial
management. The company offers consulting, technology and solutions
in the areas of benefits, talent management, rewards, and risk and
capital management. Towers Watson has more than 14,000 associates
around the world and is located on the web at towerswatson.com.
Towers WatsonEd Emerman, +1
609-275-5162eemerman@eaglepr.comorBinoli Savani, +1
703-258-7648binoli.savani@towerswatson.com
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