An enduring legacy

Reports of the death of the traditional pension plan were premature.

Reports of the death of the traditional pension plan were premature.

According to this month’s Pensionforum, 98.3 percent of respondents offer a defined benefit plan. That said, despite the fact that the bear market of the past few years has decimated the 401(k) accounts of millions of Americans, defined benefit plans aren’t exactly the wave of the future either: Of those companies that offer such plans, only 7 percent have had one in place for ten years or less. And of those few respondents who do not offer a defined benefit plan, none is mulling the creation of one. Their reasons vary: 33 percent of respondents say it is too expensive, and another 33 percent say their employees prefer a defined contribution plan.

Companies that maintain a defined benefit plan do have some changes they’d like to make: 10.2 percent want to turn their plans into a hybrid of a traditional pension plan and a cash-balance plan. More than 8 percent would like to allow transfers between their defined benefit and defined contribution plans.

Of the companies that terminated their defined benefit plans, 66.7 percent replaced them with defined contribution plans. Companies that terminated their defined benefit plans -- 50 percent did so in the past three years and 50 percent did so more than ten years ago -- say they acted because the costs were prohibitive. Nearly 10 percent of respondents considered terminating their plans and then chose to keep them instead.

Plan sponsors seem ambivalent about whether a defined contribution plan alone offers adequate retirement security. More than 12 percent don’t think their employees will have enough money to retire on, and another 75 percent say they don’t know.

Do you have a defined benefit plan?

Yes 98.3%

No 1.7

If yes, how long have you had the plan?

Ten years or less 7.0%

More than ten years 93.0

Do you have a hybrid form of defined benefit plan, such as a cash balance plan?

Yes 18.8%

No 81.2

If yes, how long have you had the plan?

Less than one year 0.0%

One to three years 60.9

Four to ten years 26.1

More than ten years 13.0

If you do not have a defined benefit plan, did you ever have one?

Yes 100.0%

No 0.0

If yes, what is the main reason you terminated the plan?

To recoup the assets 0.0%

As part of a corporate merger or spin-off 0.0

Too expensive 100.0

Too much administrative bother 0.0

Our employees preferred a defined contribution plan 0.0

Other 0.0

How long ago did you terminate the plan?

One to three years 50.0%

Four to ten years 0.0

More than ten years 50.0

Did you replace it with a defined contribution plan?

Yes 66.7%

No 33.3

Did you ever consider terminating your defined benefit plan and then decide to keep it?

Yes 9.9%

No 82.7

Don’t know 7.4

If you do not have a defined benefit plan (traditional or cash balance), are you considering establishing one?

Yes 0.0%

No 100.0

Can’t say 0.0

If not, what is the main reason?

Too expensive 33.3%

Too much administrative bother 0.0

Our employees prefer a defined contribution plan 33.3

We have no trouble attracting employees without one 0.0

Other 33.3

If you could redesign your existing defined benefit plan, what would you do differently?

Make it a hybrid 10.2%

Outsource its administration 5.1

Allow payout to be split between a lump sum and an annuity 6.1

Allow transfers between the plan and a 401(k) 8.2

Stop integrating with Social Security 5.1

None of the above 69.4

If you have a defined contribution plan and no defined benefit plan, do you think your employees will have enough money for retirement?

Yes 12.5%

No 12.5

Can’t say 75.0

Do you believe employees make decisions about whether to work for your company on the basis of the kind of pension benefits you offer?

Yes 56.7%

No 43.3

The results of Pensionforum are based on quarterly surveys of a universe of 800 corporate and 250 public pension plan sponsors. Because of rounding, responses may not total 100 percent.

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