Seven in 10 large U.S. companies now offer only 401(k) retirement plans, instead of defined benefit pension plans, to their new salaried employees, according to new Towers Watson analysis.
In its research, Towers Watson found that 70 of the Fortune 100 companies only offer a defined contribution plan to new hires, compared with 67 companies at the end of last year and 63 companies at the end of 2010.
Eleven companies have continued to offer their traditional DB plan, compared with 14 at the end of 2011, while 19 companies continue to offer a hybrid pension plan, such as a cash balance plan, the same number as at the end of 2011.
The analysis also noted that so far in 2012, there have been fewer retirement plan changes relative to 2011. Three companies switched from DB plan offerings for new salaried employees to an all-DC retirement environment. Additionally, one company converted its traditional DB plan to a hybrid plan.
“The ongoing shift from DB to DC plans due to cost and cost volatility is helping to create a next generation of retirement-age workers who may not be able to afford to retire when they would ideally like to,” said Kevin Wagner, a senior retirement consultant at Towers Watson. “The trade-off of cost versus talent issues is very real and will, without question, affect workforce and productivity issues as the next generation of workers ages.”
Some of the shift from DB to DC plans stems from annual turnover in the Fortune 100 list, reflecting mergers, spin-offs, new or rapidly growing businesses, and bankruptcies, as well as shifts in the sector makeup over the past 20 to 30 years. For example, 30 years ago, most Fortune 100 companies were in manufacturing, a sector that typically offered traditional pension plans to new hires. Over time, however, these companies have been replaced by high-tech companies, most of which never offered DB retirement plans. Among the 56 companies on both the current and 1998 Fortune 100 lists, there was a large concentration of companies that sponsored hybrid plans compared with the total list. In fact, 15 of the 19 companies that currently sponsor a hybrid plan were also on the list in 1998.
“Interestingly, as this shift in retirement plans continues, other Towers Watson research shows that younger workers are finding DB and hybrid plans more appealing than DC plans,” said Alan Glickstein, another senior retirement consultant at Towers Watson. “At a time when workforce demographics are changing and employees are growing increasingly concerned about their retirement security, employers find themselves in a position of having to carefully evaluate which type of retirement plan makes the most sense for them and their employees.”
Towers Watson is a global professional services company that helps organizations improve performance through effective people, risk and financial management.