Shift from DB Plans Continues, Study Finds

By John Iekel • September 08, 2014 • 0 Comments
In 1998, 60% of Fortune 500 employers offered their employees some kind of DB plan. Last year, 24% did so. The drop is even sharper regarding traditional DB plans: in 1998, 51% offered them to new employees, but in 2013, a mere 7% did. And the number has dropped more this year, according to a new study by Towers Watson; seven more employers have stopped offering DB plans to new employees.

Employers in the insurance, utilities and health care/pharmaceuticals sectors are the most likely to still offer DB plans to new hires. Still, in the industry sector that offers DB plans to new hires to the greatest degree — insurance — only 20% do so. Following are examples of the percentage of selected sectors that offered a traditional DB plan in 1998 and 2013:

• aerospace and defense: 100/0
• insurance: 82/20
• automobiles and transportation: 79/7
• food and beverage: 74/13

Many of the employers in the Fortune 500 have shifted to a DC plan. The study says that most of the employers that do use one of three approaches:

1. Close the DB plan to new hires but all participants hired before a certain date continue accruing benefits, either at the same or a reduced level.
2. Partially freeze the DB plan, allowing only participants who meet an age and/or tenure requirement to continue accruing benefits in the plan; all other participants are moved into the plan offered to new hires.
3. Complete freeze, stopping all DB accruals and moving all participants to the plan offered to new hires.

And almost all of the employers that closed the DB plan increased DC benefits.

Towers Watson says that the changes show a number of widescale results, including:

• There is a wide redistribution of corporate resources regarding retirement benefits.
• Employers have been cutting spending and more evenly distributing retirement funds.
• The transition from DB plans to DC plans offers employers the advantage of shifting responsibility from the employer to the employee, but it also reduces an employer’s control over retirements and makes their incidence less predictable and regular.