After years on the endangered species list, defined benefit (DB) plans have halted what many considered their slide toward extinction, according to two new surveys by benefits consultant Watson Wyatt Worldwide.
One survey showed that the percentage of Fortune 1,000 plan sponsors that froze DB plans in 2007 dropped to 4% from 7% in 2006–on par with the 4% that were frozen in 2005. A second study of 300 organizations with pension plan assets of more than $100 million found that 59% have made a formal decision to keep their plans open to current participants and new employees.
Based on the historical focus of the first study and the forward-looking assessment of the second, it appears that DB plan freezes may have peaked last year, according to Alan Glickstein, senior retirement partner at Watson Wyatt. "We are not ready to declare them extinct," he says. "If they are kept on a Sierra Fund watch and defended properly, they should remain a part of the retirement landscape."
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That's good news for upcoming generations of retirees who fear that their defined contribution (DC) plans may not outlive them–even though workers shouldn't expect to see many new pure DB plans created, cautions Glickstein. "It's fair to say that if there is growth in retirement plans in general, but DB options will be the exception."
Future growth likely lies in hybrid plans–including pension equity, cash balance and other yet-to-be designed plans, he says. In fact, Glickstein notes that high-tech companies have recently started discussing the potential for retirement programs that could include some DB option. After all, stock options, which for so long have been used as an incentive to lure talent away from competitors, may fall out of favor as they become more costly to corporations as a result of FAS 123. "We've already seen some indication of an uptick in interest in hybrids, even though the rules don't kick in until 2008 and we still don't even have all the rules," he says.
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