Study Finds Shift in Retirement Offerings

A Willis Towers Watson study finds that most large employers now provide only defined contribution and other account-based plans to newly hired employees. “Retirement Offerings in the Fortune 500: A Retrospective” examines the primary retirement plans offered by current Fortune 500 companies between 1998 and 2017.

As detailed in the report, only 16% of Fortune 500 employers offered a defined benefit plan (traditional or hybrid) to salaried new hires in 2017, down from 59% in 1998. Fifty-one percent of these companies still employ workers who are actively accruing pension benefits, and 93% of those who sponsored a DB plan in 1998 still manage plan obligations and assets.

The report shows the various paths taken by DB sponsors to arrive at their current plan structure, noting that some closed or froze their traditional DB plans and then moved workers into hybrid pensions, while others transitioned workers to a DC-only environment, sometimes offering a hybrid plan along the way:

• approximately 93% of employers that sponsored a traditional DB plan in 1998 no longer offer the plan to new hires;

• 50% froze or closed their primary plan and transitioned to a DC-only environment for salaried new hires; and

• 43% amended the traditional DB plan to a hybrid DB design.

While the shift to a DC-only environment has been well documented, the report explains that there have been variations among sectors. For example, between 1998 and 2017, the most “striking uptick” in DC-only sponsorship was in the food and beverage sector (79%), automobiles and transportation equipment (78%), communications (69%), transportation (62%), manufacturing (59%) and finance industries (55%).

The study notes that those sectors, along with the wholesale industry, have also seen significant shifts (over 20%) from DB to DC-only since the 2008 financial crisis, with employers in the communications sector having had an “especially high number” of DB-to-DC transitions over the past few years.

Changes to DC Plan after DB Freeze

When analyzing what happened to DC plans when the sponsor moved all employees to a DC-only program after a full pension freeze, the study found that the majority of employers either added a nonmatching contribution to the DC plan, increased the current match or adopted some combination of the two.

In 15% of companies that completely froze their primary DB plans, former DB plan participants received larger DC contributions than those who were never enrolled. The data further shows that in transitioning from the original DC to the enhanced DC plan, former DB participants gained an average 3.1% of pay in their DC plans. In addition, the difference between new hires and former DB participants was approximately 0.8% of pay, most of which derived from nonmatching contributions, the report notes.