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Member, Beacon International Group, Ltd.
The number of large U.S. employers that offer a defined benefit pension plan to new salaried employees continues to decline while the number offering only defined contribution plans continues to increase, according to a study released last week.
As of May 12, 42% of Fortune 100 companies offered a defined benefit plan to new salaried workers, according to New York-based Towers Watson & Co. That's down from 45% in 2009, 42% in 2007 and 83% as recently as 2002.
While employers are phasing out traditional defined benefit plans, hybrid plans, which legally are defined benefit plans that combine elements of defined benefit and defined contribution plans, are holding steady.
Seventeen Fortune 100 companies offered a traditional defined benefit plan as of mid-May to new employees, down from 20 in 2009 and 49 in 2002.
On the other hand, 25 Fortune 100 companies offered hybrid plans, mostly cash balance plans—the same as in 2009 and 2008, though down from 34 in 2002.
By contrast, the percentage of Fortune 100 companies offering only defined contribution plans has soared. Fifty-eight of the Fortune 100 offer only that option to new salaried workers. In 2002, the number offering only defined contribution pension plans was 17.
“The movement toward account-based plans appears to be steady and strong as companies shift away from traditional pension” plans, said Kevin Wagner, a senior Towers Watson retirement consultant in Atlanta, in a statement.
Employer interest in cash balance plans increased in the wake of a 2006 law that created “a more friendly environment” for the plans, Mr. Wagner said.
Among other things, the Pension Protection Act made clear that the basic design of the plans does not discriminate against older employees.
A summary of the analysis is available at www.towerswatson.com.