Some industry sectors are bucking the trend from defined benefit pension plans to defined contribution plans, with more than half of companies in the insurance and utility sectors still offering DB and DC retirement plans to new salaried employees.
In the utility sector, 59% offer a DB pension plan to new hires while 66% of insurance companies do so. Utilities tend to have lower turnover and more long-term career workers than other sectors. The insurance sector, meanwhile, includes mutual insurance companies that are not publicly traded, and these companies face different external pressures and have different objectives from other industries. Additionally, due to the nature of their work, insurance industry employees may be more inclined to understand and appreciate DB plans than workers in other sectors.
Retirement programs are at their core, human resource programs, says Kevin Wagner, senior retirement consultant with Towers Watson. In the utility industry, for example, there is a great desire to have people be able to retire at a reasonable age because the work can be so physically demanding. So they need programs that encourage employees to retire at a time that is best for them and the organization.
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Towers Watson analyzed DB and DC pension trends among Fortune 500 companies and found that the retirement plan landscape is stabilizing as fewer U.S. companies last year moved from DB plans to offering only a DC plan to new salaried employees than in any other year over the past decade.
Twenty-four percent of Fortune 500 companies offered any type of DB plan to new hires at the end of 2013, down from 60% 15 years ago. Among those 118 companies offering some type of DB plan to new hires, 84 offered a hybrid plan and 34 offered a traditional plan.
There was quite a surge of closing or freezing these [DB] pension plans over the years and I think were getting close to the end of the mass migration from traditional defined benefits to account-based plans, says Wagner. Although well still see some movement, more organizations are making affirmations of the types of plans they do have.
