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The number of defined benefit pension plans sponsored by the nation's largest corporations continues to fall.
Just 99, or about 20%, of Fortune 500 companies offered a defined benefit plan to new salaried employees in 2015, down from 104, or nearly 21% in 2014, and a dramatic fall from a decade earlier in 2005, when 248, or just over 48% of Fortune 500 firms, offered the plans, according to a Willis Towers Watson P.L.C. analysis released last week.
Frequently cited reasons for the decline in employer sponsorship of defined benefit plans include longer employee lifespans, which increases benefit costs; decreased corporate tolerance of fluctuating contribution requirements, which can jump up and down due to investment results; and escalating Pension Benefit Guaranty Corp. insurance premium rates.
The move away from defined benefit plans varies by industry.
For example, among the 36 insurers in the Fortune 500, 50% now only offer a defined contribution plan to new salaried employees, while 45% of the 29 utility companies in the survey offer only defined contribution plans.
By contrast, 79% of the 65 manufacturing firms in the Fortune 500 now offer only defined contribution plans to new salaried employees, while 83% of the 38 surveyed finance companies offer only defined contribution plans.
The analysis noted that the relatively high rate of defined benefit plan sponsorship in the utility industry may be due to several factors, including that many utilities “are typically heavily unionized and generally prefer to keep their retirement structure consistent between their union and nonunion workforces.”
The analysis also found that the move away from defined benefit plans has been especially pronounced among employers sponsoring traditional plans, such as final average pay plans. Last year, just 24 Fortune 500 companies still offered traditional defined benefit plans to new salaried employees, a huge drop from the 138 companies that offered such plans in 2005.
Sponsorship of hybrid plans such as cash balance plans, which have both defined benefit and defined contribution plan features but legally are defined benefit plans, also has declined. But that decline has not been as sharp compared with traditional plans.
For example, 75 Fortune 500 companies offered a hybrid plan to new salaried employees last year, a relatively modest drop compared with 104 companies that offered the plans in 2005.
The Pennsylvania Senate has approved a pension reform bill to address the unfunded liabilities of the state's two largest pension plans.