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Member, Beacon International Group, Ltd.
The nation's largest pension plans continue to move away from defined benefit pension plans in favor of 401(k) and other defined contribution plans, according to a new survey.
Last year, 54% of Fortune 100 companies offered a defined benefit plan to new salaried employees, a drop from 2006, when 58% of the companies offered defined benefit plans to new employees, Watson Wyatt Worldwide reports in an analysis released Thursday.
Traditional defined benefit plans have fallen out of favor over the past two decades. In 1985, 89% of the Fortune 100 offered a traditional defined benefit plan to new employees, compared with just 28% in 2007, according to Arlington, Va.-based Watson Wyatt.
Pension plan hybridsso named because they combine elements of defined benefit and defined contribution plans but legally are defined benefit plansalso have been in decline after earlier years of heady growth in the 1990s, when big employers rapidly converted traditional plans to cash balance plans, the most widespread hybrid.
In 1985, just one Fortune 100 company offered a hybrid plan to new employees; by 2002, 34% did. But last year, only 26% of large companies offered hybrids, down from 28% in 2006.
The popularity of cash balance plans began to wane after the 2002 highpoint amid a wave of lawsuits, charging that the design of the plans discriminated against older employees.
But Alan Glickstein, a senior retirement consultant in Watson Wyatt's Dallas office, said he believes more employers will be adopting the plans in the future as legal uncertainties surrounding the plans have eased. Among other things, several appeals courts have ruled that the plans are not age discriminatory, while Congress, as part of 2006 pension funding reform legislation, made clear that new plans are protected from such suits.
"There now is a lot more discussion out there about these plans," Mr. Glickstein said.