Towers Watson says fewer companies today are actively moving away
from DB plans and establishing DC plans for
new salaried employees than at any other point over the past decade. The analysis
also suggests a few industry sectors—notably the insurance and utilities
sectors—are bucking the general trend of moving from DB to DC retirement plans. More than
half of the companies operating in the insurance and utilities sectors still
offer DB and DC retirement plans to new salaried employees.
The prevalence of DB plans has clearly taken a hit from
historic highs, however. The Towers Watson analysis found only 118 Fortune 500
companies, or roughly 24%, offered any type of DB plan to new hires as of the
end of 2013. This is down from 299 companies, or 60%, just 15 years ago.
While
the number of Fortune 500 companies with open DB plans
reached yet another record low in 2013, the number of companies (five)
that
moved away from DB plans last year is the lowest number to shift from DB
to DC per year in more than a decade. Nearly half of the companies that
no longer provide DB benefits to new employees still have active
employees who
are accruing benefits.
Among companies still offering DBs to new
employees, 84
offer a hybrid plan and 34 offer a traditional pension plan, according
to Towers Watson. Traditional pension plans have taken the hardest hit
during
the overall shift from DB to DC plans, whereas hybrid
pension plans have held relatively stable. More than half of the
employers that established a hybrid plan—most often a cash balance
plan—either before or after 1998 still offered the plan to new hires in
2013.
The analysis found striking
differences
in the retirement benefit offerings of different industries. Among
insurance companies, 66%
offer a pension with a supplemental DC option to new hires, while 59% of
utilities do so. Utilities tend to have lower turnover and more
long-term career
workers than other sectors, Towers Watson says, which can be favorable
for retirement readiness.
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, the firm
notes, leading to less pressure on DBs. 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 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, Towers Watson says. 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,” says Kevin Wagner, senior retirement consultant at
Towers Watson. “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.”
“With
DC plans steadily becoming the primary retirement vehicle for millions
of
workers, more responsibility and risk is being shifted to employees,”
says 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.”
More
about the analysis and other Towers Watson research is at http://www.towerswatson.com/.