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Pension plan changes must meet needs of all


When a company the size of the Dow Chemical Co. bucks a retirement plan trend and decides to remain in the defined benefit plan system, other employers should take note.

As we report on page one, Dow is keeping a final average pay plan design known as a pension equity plan for current employees, while new employees will earn pension benefits through a cash balance plan.

Years ago, that would not have been big news. Indeed, more than 1,000 employers have adopted cash balance plan designs since the first plan was established more than 20 years ago.

But it is news today because the trend of the past few years has been for employers to freeze their defined benefit plans--be they final average pay designs or cash balance--in favor of enhanced 401(k) plans.

Obviously, no one design works for all employers and that is why we doubt whether every employer that has phased out its defined benefit plans in favor an all-defined contribution plan approach has thoroughly considered the ramifications. Many, we have a strong hunch, are just following the herd.

Have employers, for example, considered what happens when defined contribution plans are the only retirement plans they offer and employees invest badly and they have to stay on the job longer than they or their employers wanted? Conversely, what if employees' defined contribution plan investments generate spectacular results and valued employees retire much earlier than employers expected, draining a company of a valuable talent pool?

There are other ramifications to changing retirement plans in which investment risk is shifted from employers to employees.

Employers mulling such significant changes should do so carefully and consider all the implications. A herd mentality is no way to design a retirement savings program that best meets the needs of a company and its employees.