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DB Plans Holding Their Own, EBSA Finds

It’s no secret that defined contribution plans have long been advancing at the expense of defined benefit plans. And while a recent report from the Department of Labor’s Employee Benefits Security Administration (EBSA) confirms this overall trend, it also shows surprising vitality among DB plans.

EBSA’s findings concerning DB and DC plans are contained in its recently released Private Pension Plan Bulletin. EBSA bases its findings on the 2015 Forms 5500 the sponsors of those plans filed.

EBSA attributes the long-term shift from DB to DC plans to changes in employer behavior and worker characteristics and the arrival of 401(k)-style DC plans. It cites several explanations:

  • The flexibility and convenience 401(k)s offer regarding participation, contributions and allocation of funds.
  • Changes in workforce mobility — workers tend to change jobs more frequently and DB plans are usually not transferable when an employee moves from one employer to another.
  • Increasing costs of DB plans, including higher accrued benefits, early retirements and increases in life expectancy.
  • A decline in industries that commonly offered DB plans.
And, EBSA says, the increase in the number of DB plans that close — no longer allowing new participants — also suggests that this overall DB to DC trend is not going away.

DB Vitality

Despite the long-term trend, EBSA reports that in 2015, growth among private DB plans outstripped that of private DC plans — the number of DB plans grew by 1.8%, while the number of DC plans went up by 1.2%.

Also, the increase in contributions was sharper for DB plans than for DC plans; contributions to DB plans rose by 10.9%, while contributions to DC plans grew by 7.7%.

But DCs March on

DC plans may have grown at a slower pace, but the amount by which their disbursements in 2015 outstripped their contributions was smaller than for DB plans. DC plans’ disbursements exceeded their contributions by $15.9 billion; DB plans paid out $143.2 billion more than they took in.

And DC plans collectively held more than DB plans: in 2015, DC plans had assets of $5.3 trillion; DB plans had $2.9 trillion. Both kinds of plans saw decreases in their overall revenue, but EBSA says that DC plans’ revenue fell more gently than that of DB plans. DC plans’ revenue fell by 0.6% in 2015, and DB plans’ revenue dropped by 4.1%.