By Rob Kozlowski
May. 23, 2012
More than two-thirds of U.S. corporations that offer a defined benefit pension plan to new employees say they are committed to continue offering the plan to new hires, according to a survey from Towers Watson & Co.
Of the 424 midsize and large employers—based on the number of participants—with a defined benefit plan surveyed, just 36 percent—down from more than 90 percent in 2000—still offer DB plans to new employees. Of that total, though, 68 percent responded they remained committed to new hires.
The survey, “Pensions in Transition; Retirement Plan Changes and Employer Motivations,” also reports that support for DB plans is strongest at companies with the most participants. In the largest 10th percentile, 45 percent offer their DB plan to new hires.
While the commitment to new hires isn’t surprising to Alan Glickstein, a senior retirement consultant in the Dallas office of Towers Watson, it might seem so to others, he said.
“The actual story is a bit more varied than that. There (are) different answers for different employers. Some have moved away from pensions. Others are highly committed,” Glickstein said in an interview.
Among defined benefit plans offered to new hires, 54 percent are hybrid plans such as cash balance plans, which combine elements of defined benefit and defined contribution plans, but legally are defined benefit plans.
“I do think we’ll continue to see movement away from traditional pension (plans),” Glickstein said. “Death is sometimes more like evolution than an end, so what I think we’re seeing is a transformation, and I think we’ve seen it for 10 to 15 years now,” he said.
Among companies that have converted to hybrid plans since 2000, 40.4 percent said their primary motivation was to reduce cost, with 29.8 percent citing a reduction in cost volatility.
Among the 245 companies that have moved to defined contribution plans only from a DB plan, 64.5 percent have closed their DB plan, 33.1 percent have terminated it, and the rest have frozen it. A freeze is one in which no employees earn future benefits, while typically when an employer closes a pension plan, that means new employees are not offered coverage in the plan.
The top two primary reasons for the move for those employers was a reduction in cost, at 44.9 percent, and a reduction in cost volatility, 39.9 percent.
The survey was conducted from October through December of 2011.
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