The number of large U.S. employers that offer a defined benefit pension plan to new salaried employees continues to fall, while the number offering only defined contribution plans continues to increase, according to a study by Towers Watson & Co.
As of May 31, 30% of Fortune 100 companies offered a defined benefit plan to new salaried employees, the New York-based consultant said. That's down from 37% at the end of 2010, 43% in 2009, 47% in 2008 and 83% as recently as 2002.
“The decline of traditional DB plans is striking,” Towers Watson noted in an article posted last week in Insider, a company research publication.
Employers are phasing out both traditional defined benefit plans and hybrid plans, such as cash balance plans, which legally are defined benefit plans that combine elements of defined benefit and defined contribution plans.
Just 13 Fortune 100 companies offered a traditional defined benefit plan as of May 31 to new salaried employees. That's down from 17 in 2010, 19 in 2009 and 23 in 2008.
Major change
That’s a major change from the 1980s, when traditional defined benefit plans were the norm at the nation’s largest employers. In 1985, for example, nearly 90% of Fortune 100 companies offered a traditional plan to new employees.
Hybrid plans, which grew rapidly until a flood of lawsuits challenged cash balance plans as being age discriminatory, also are being phased out.
As of May 31, 17 Fortune 100 companies offered hybrid plans to new salaried employees, down from 20 at the end of 2010 and 24 in both 2009 and 2008. Hybrid plan sponsorship peaked in 2002, when 35 Fortune 100 companies offered the plans to new salaried employees, according to the Towers Watson research.
Defined contribution rules
As defined benefit plans are being phased out, the vast majority of large companies now offer only defined contribution plans, especially 401(k) plans, to new employees.
As of May 31, 70% of Fortune 100 firms offered only defined contribution plans to new salaried employees, up from 63% in 2010, 57% in 2009 and 53% in 2008. As recently as 1998, just 10% of Fortune 100 companies offered only a defined contribution plan to new salaried employees.
One key reason for the shift away from defined benefit plans in favor of defined contribution plan is a change in employer focus, according to Towers Watson.
“Employers have changed their focus from providing retirement income to workers who stay until retirement to providing a more uniform level of retirement-directed capital accumulation for all employees,” the consultant said in the analysis.
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