Fewer Fortune 500 Companies Shifting Defined Benefit Plans To 401(k)s
Proquest LLC |
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
In its release, the company said 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.
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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 percent) of employers that established a hybrid plan either before or after 1998 still offered a hybrid plan to new hires in 2013.
"With DC plans steadily becoming the primary retirement vehicle for millions of workers, more responsibility and risk is being shifted to employees," said
The analysis also found that certain sectors - utilities and insurance, for example - are retaining their pension plans. Among insurance companies, 66 percent offer a pension and DC plan to new hires while 59 percent 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 percent.
"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
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