Sponsors of Active DB Plans Remain Committed

A Towers Watson survey of 424 midsize and large U.S. employers with DB plans found that more than two-thirds (68%) of respondents that currently offer a DB plan to new salaried employees remain committed to offering a DB plan to new hires over the next two to three years. More than one-third (36%) of respondents currently offer a DB plan to new employees. The survey also found support for DB plans is strongest at companies that cover the most participants: among the largest 10th percentile of respondents, 45% still offer a DB plan to new hires.   

When asked why they are committed to offering a DB plan to new hires, more than seven in 10 (71%) respondents cited promoting employee attraction and retention as the key reason, followed by maintaining employee morale, cited by 50% of respondents. The survey noted that only one-fourth of respondents with active DB plans are not firmly committed to their DB plan, and a small percentage (7%) plan to close or freeze their plan over the next two to three years.  

“[D]espite 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 DC plan as an effective stand-alone retirement plan,” said Alan Glickstein, a senior retirement consultant at Towers Watson. 

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The survey also found employers are adding features to their defined contribution (DC) plans that mirror features of DB plans. Nearly six in 10 (59%) respondents use automatic enrollment, and about half of those have implemented automatic escalation, which typically increases the employee contribution annually. Additionally, while virtually all employers offer at least a matching contribution to DC plan participants, more employers (42% now versus 33% in 2007) are providing non-matching contributions.   

“Effective DC retirement plans require that workers understand and take full advantage of them — which is why organizations are moving beyond merely making these benefits available,” said Mike Archer, senior retirement consultant at Towers Watson.   

Other key findings from the survey include: 

• Hybrid plans, primarily cash balance plans that combine features of 401(k) plans and traditional pension plans, are now the most prevalent type of DB plan for new hires. More than half (54%) of DB plans are hybrid plans, while 46% are traditional plans. 
• More than three-fourths (78%) of DB plan sponsors for new hires believe employees value the guaranteed benefits from pensions more than other features, compared with only 50% of DC-only sponsors.  
• Additionally, 54% of DB sponsors for new hires believe employees value income throughout retirement, while only 28% of DC-only sponsors do. 

The Towers Watson survey, “Pensions in Transition: Retirement Plan Changes and Employer Motivations,” was conducted from October to December 2011. More information is here.