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CCH® PENSION — 6/4/08

More Than Half Of Largest Companies Continue To Offer Defined Benefit Plans

From Spencer's Benefits Reports: The pace of retirement plan changes among Fortune 100 companies is stabilizing, and a majority still offer pension plans to their new employees, according to an analysis by Watson Wyatt Worldwide.

The analysis of retirement plan sponsorship among Fortune 100 companies found that more than half—54 firms—offer a defined benefit pension plan to newly hired salaried workers (see table below). Following an 11% decline between 2004 and 2005, the number of Fortune 100 companies sponsoring pension plans decreased by 5% in 2006 and 4% in 2007. The rate of change slowed after passage of the Pension Protection Act of 2006, which established a more supportive environment for both traditional and hybrid (e.g., cash balance) defined benefit plans. However, Watson Wyatt cautions, with proposed hybrid plan regulations not final until 2009, “it could take several years to see the full effect of these encouraging developments for [defined benefit] plans.

“Thanks in large part to the pension reform legislation, the peak rate of replacing [defined benefit] plans with defined contribution-only plans appears to be behind us,” said Alan Glickstein, a senior retirement consultant at Watson Wyatt. “In fact, as companies evaluate what the new rules mean for them, we could very well see a renewed commitment to hybrid and other defined benefit plans.”

Of the 54 defined benefit pension plans sponsored by Fortune 100 companies, 28 are traditional plans and 26 are hybrid plans. Most companies that sponsor a defined benefit plan also offer their new employees a defined contribution plan, and 46 firms have moved to a defined contribution-only approach.

“Companies are seeking innovative ways to reduce the risks and costs associated with their retirement plans while still providing attractive benefits,” said Kevin Wagner, a senior retirement consultant at Watson Wyatt. “For some employers, that will mean offering an enhanced DC-only plan. Others, however, might opt for hybrids, given the combination of reduced volatility for employers and secure, portable benefits for employees.”

An earlier Watson Wyatt study of the retirement plans of 300 large companies found that more than a third of the plan sponsors that converted their traditional defined benefit plan to a hybrid plan did so to reduce cost or cost volatility, and 38% were motivated by enhancing employee perception and worker attraction and retention.

For more information, visit http://www.watsonwyatt.com.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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