October 18, 2012

Towers Watson: 70 Percent of Large Companies Offer Only 401(k) to New Salaried Employees

Towers Watson logoA Towers Watson analysis found the number of large U.S. companies offering new salaried employees only a defined contribution (DC) plan has increased in 2012, as just 30 percent of large companies were found to offer a defined benefit (DB) pension to new hired salaried workers. The increasing trend began in 2010 when 63 of the Fortune 100 companies offered only a DC to new hires, which then rose to 67 in 2011 then to 70 this year. Of the remaining companies, 11 offer traditional DB plans and 19 offer a hybrid plan (e.g. a cash balance plan).

“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. “The trade-off of cost versus talent issues is very real and will, without question, affect workforce and productivity issues as the next generation of workers ages.”

The report says that some of the shift is a reflection of mergers, spin-offs, rapidly growing businesses, and bankruptcies occurring within the Fortune 100 list but it is seen primarily as a result of the shift from manufacturing jobs to high-tech companies, which typically never offer DB plans. There is a growing concentration of companies on the Fortune 100 list that offer hybrid plans.

“Interestingly, as this shift in retirement plans continues, other Towers Watson research shows that younger workers are finding DB and hybrid plans more appealing than DC plans,” said Alan Glickstein, senior retirement consultant at Towers Watson. “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.”

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Joshua Bjerke, from Savannah, Georgia, focuses on articles involving the labor force, economy, and HR topics including new technology and workplace news. Joshua has a B.A. in Political Science with a Minor in International Studies and is currently pursuing his M.A. in International Security.