Fewer Employers Offering Defined Benefit Pension Plans to New Salaried Employees

The percentage of the largest U.S. employers that offer a defined benefit pension plan to new salaried employees continues to fall, according to new research.

As of June 30, 30 percent of Fortune 100 companies offered a defined benefit plan to new salaried employees, according to New York-based Towers Watson & Co. That’s down from 33 percent at the end of 2011, 37 percent in 2010 and 43 percent in 2009.

As recently as 1998, defined benefit plans were the norm among the nation’s largest employers, when 90 percent of Fortune 100 companies offered the plans to new salaried employees.

Since then, large employers have moved away from the plans. “Large employers have been reassessing their retirement offerings for some time. … The shift is motivated by several factors, including employers’ desire to reduce overall retirement costs — perhaps due to higher compensation and benefit costs elsewhere, especially health care — perceptions that workers prefer more portable plans, market trends, and the belief that such a shift reduces financial risk,” Towers Watson said in an article posted Oct. 2 in The Insider, a company publication.

In addition, as more companies have moved away from defined benefit plans, the competitive pressure on employers to continue to offer the plans has declined, said Alan Glickstein, a Towers Watson senior retirement consultant in Dallas.

The move away from defined benefit plans has been especially pronounced for traditional plans, in which the benefit is typically based on employees’ years of service and employees’ salary during their last years of employment.

Just 11 Fortune 100 companies offered a traditional defined benefit plan to new salaried employees as of June 30, down from 14 in 2011, 17 in 2010 and 19 in 2009.

By contrast, during the 1980s, defined benefit plans were the norm among Fortune 100 companies. In 1985, for example, nearly 90 percent of Fortune 100 companies offered a traditional defined benefit plan to new employees.

The prevalence of hybrid plans, typically cash balance plans, also has sharply declined. As of June 30, 19 Fortune 100 companies offered hybrid plans to new salaried employees. That’s unchanged from 2011, but almost 50 percent less compared with 2004, when 35 Fortune 100 companies offered the plans. While hybrid plans have defined benefit and defined contribution plan elements, legally they are defined benefit plans.

While a handful of big employers, including Dow Chemical Co. and The Coca-Cola Co., have set up new cash balance plans in recent years, new formations have been more than offset by other Fortune 100 companies, including Bank of America Corp., SunTrust Banks Inc. and Wells Fargo & Co., which began to phase out their cash balance plans.

As employers have moved away from defined benefit plans, the overwhelming majority of Fortune 100 companies now offer only a defined contribution plan to new salaried employees, according to Towers Watson.

As of June 30, 70 percent of the Fortune 100 offered only defined contribution plans, up from 67 percent in 2011, 63 percent in 2010 and 57 percent in 2009. By contrast, as recently as 1998, just 10 percent of Fortune 100 companies offered only defined contribution plans.