Employers Likely to Keep Providing Defined Benefits Plans

Companies that continue to offer defined benefits (DB) pension plays are likely to continue providing those benefits to new exempt employees, according to a new Towers Watson survey. The survey also discovered that some employers are mirroring their defined contribution (DC) plans to a defined benefits design to eliminate savings gaps from the shift from DB to DC plans.

The survey found that68 percent of midsized to large employers currently offering DB plans are committed to offering them to new hires throughout the next 24 to 36 months; about 36 percent of respondents reported offering a DB plan to new employees. Companies that continue to support DB plans were found to also be those with the most participants.

“Several factors including low interest rates, falling equity values, a deep economic recession with uneven recovery, and regulatory and legislative uncertainty have made sponsoring DB plans less attractive to employers over the past decade,” said Alan Glickstein, a senior retirement consultant at Towers Watson. “Yet, despite a vastly changed landscape for retirement plans, the fact that many employers remain committed to DB plans is encouraging, especially since it is more difficult for employees to rely on a DC plan as an effective stand-alone retirement plan.”

Over 70 percent of respondents said that the primary reason they continue to offer DB plans to new hires is to promote the attraction and retention of talent. About half of respondents cited employee morale as the primary reasons. Only about one-quarter of respondents with active DB plans reported to not being committed to the plan while 7 percent actually plan to close or freeze their plans within the next three years.