Shift to 401(k)s Continues Among Fortune 100 Companies

70% of large U.S. companies now offer only 401(k) plans to new salaried employees

By Stephen Miller, CEBS Oct 19, 2012
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The number of large U.S. companies that offer new salaried employees only a 401(k)-type defined contribution (DC) plan continued to increase in 2012, according to an annual analysis by consultancy Towers Watson.

Only 30 of the 100 largest U.S. companies offered a traditional or hybrid defined benefit (DB) plan to newly hired salaried workers in 2012. Meanwhile, 70 Fortune 100 companies offered only a DC plan to new hires, compared with 67 companies at the end of 2011 and 63 companies at the end of 2010.

Fortune 100 Retirement Plan Sponsorship

Plans offered to new salaried hires

1985

(end of year)

2011

(end of year)

2012

(midyear)

Traditional defined benefit pension plan

89

14

11

Hybrid defined benefit plan (e.g., cash balance plan)

1

19

19

401(k)-type defined contribution plan only

10

67

70

Source: Towers Watson

As of mid-2012, three Fortune 100 companies had switched from offering DB pension plans to new salaried employees to an all-defined contribution retirement environment. Additionally, one Fortune 100 company converted its traditional DB plan to a hybrid plan.

Fewer Guarantees, More Portability

“The ongoing shift from DB to DC plans due to cost and cost volatility is helping to create a next generation of retirement-age workers who may not be able to afford to retire when they would ideally like to,” said Kevin Wagner, a senior retirement consultant at Towers Watson, in a media statement.

Alan Glickstein, another senior retirement consultant at Towers Watson, counters: “Younger workers are finding DB and hybrid plans more appealing than DC plans.” He noted that unlike DB plans, DC plans are characterized by rapid vesting in employer contributions, employee ownership of accounts and plan portability

“At a time when workforce demographics are changing and employees are growing increasingly concerned about their retirement security, employers find themselves in a position of having to carefully evaluate which type of retirement plan makes the most sense for them and their employees,” Glickstein said.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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