Bucking what seems to be the conventional wisdom about the not-so-slow decline of defined benefit pension plans, Towers Watson's newest survey suggests that a large percentage of companies with DB benefits continue to offer them to their new employees.
The findings seem to counter months (and years) of recent news stories that organizations both private and public have opted to drop DB plans for new hires and substitute 401(k)-styled plans, if anything.
Towers Watson's survey, based on comments from 424 mid-size and large employers, found that 68 percent who currently offer DB plans to new hires say they will continue to offer those benefits for the next two to three years.
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Overall, 36 percent of those polled offer DB benefits to new hires, and based on proportional size, the fact that 45 percent of those companies with more than 42,000 participants are still on the DB bandwagon for new employees.
As a caveat, however, the survey notes that 70 percent of respondents to a 2000 survey offered traditional, final-average-pay plan DB benefits to new hires, and only 17 percent do today. That trend began to escalate dramatically in 2004, and at present, hybrid DB plans make up the bulk of the remaining offerings.
Alan Glickstein, a retirement consultant with the firm, said that indicates that DB offerings still a significant factor in the retirement world, even with overall shrinkage.
"Despite a vastly changed landscape for retirement plans, the fact that many employers remain committed to DB plans is encouraging, especially since it is more difficult for employees to rely on a defined contribution plan as an effective stand-alone retirement plan," he said.
Why do companies continue to offer the benefits, knowing that they're expensive to maintain and that pension funds are critically underfunded, across the board? A healthy number of respondents (71 percent) say they do it to attract and retain employees, as well as maintaining employee morale (50 percent).
Of those surveyed, only a quarter said they are not in fact fully commited to their DB plan, and 7 percent are on their way to closing or freezing their plan in the next few years.
Employers who can't or don't offer DB plans are also opting to add DB-styled benefits to their DC plans, including automatic enrollment (59 percent) and automatic escalation. They've also become more generous in their contributions to employees' DC plans, with 42 percent now offering a non-matching contribution – up from 33 percent back in 2007.
"Employers that provide DC-only plans recognize that they need to increase employee engagement with their plans in order to improve their employees' retirement readiness," said Mike Archer, a senior retirement consultant with Towers Watson. "Effective DC plans require that workers understand and take advantage of them."
Research indicates that hybrid plans, combining 401(k)-styled features with traditional pension benefits, are the most prevalent type of DB offered for new hires.
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