Despite being more benefits rarity than reality, a new Towers Watson analysis finds that the traditional defined benefit retirement plans of yesteryear still hold favor among job-seekers, particularly younger workers who have shown waning hope in their retirement futures.
Three-fourths of America’s younger workers say an employer-sponsored retirement program is important for either joining or staying with an employer, which has jumped sharply in the past two years, especially at employers that still offer a pension plan, according to a survey by Towers Watson. TW finds that among workers younger than age 40 whose employer offers a defined benefit pension plan, the percentage who agreed their retirement program was an important factor in accepting their job more than doubled from 28% in 2009 to 63% in 2011. That compares with a nine-percentage-point gain (19% to 28%) for younger employees at organizations that offer only a defined contribution plan.
But are companies that still offer defined benefit plans to new hires really hiring younger workers, who — depending on their tenure with an organization — may be costliest to the plan? The Towers Watson survey reveals that more workers who accept a job that offers a DB plan intend on a long career with their employer. More than three-fourths (77%) of new hires at companies with a DB plan say the retirement plan gives them an important reason to stay on the job, and 85% hope to work for their employer until retirement.
“It’s still attractive to young employees, which is good news for HR execs trying to defend [a traditional pension] program or encouraging a hybrid plan, but there is a still [financial] risk; it’s a high hurdle to get over,” acknowledges David Speier, senior retirement consultant at Towers Watson. “There are ways to mange it that can support putting one back in place, but it’s a difficult challenge.”
Still, he notes: “Companies that have DB plans are still hiring people, I don’t think they’re changing the profile of the people they’re hiring.”
Retirement plans have also become stronger retention tools among younger employees with a DB plan. Nearly three-fourths (72%) of these employees cite their retirement plan as a strong incentive to stay with their employer nearly double the percentage (37%) in 2009, and twice the retention value reported by younger workers whose employers offer only a DC plan.
“Two factors are likely causing this change: The combination of a slow economic recovery and more older employees delaying retirement is making it increasingly difficult for younger employees to find jobs or advance in their careers,” says Speier. “As a result, young workers are clearly giving much more weight toward both employer retirement and health care benefits when making career and employment decisions.”
The survey also found that the number of DB plan participants hired within the last two years who said the retirement program was an important factor in joining their employer jumped from 27% in 2009 to 70% in 2011. At employers with DB plans, employees hired within the past two to five years were more than 3.5 times as likely to say their retirement program strongly affected their employer choice decision (67% versus 18%). Meanwhile, retirement programs have become only slightly better attraction tools at companies with only a DC plan. Of this group, 19% of employees hired over the same time span reported that the retirement program was an important reason for their employer choice.
