While old-fashioned defined benefit retirement plans have become less popular among employers in the last 20 years because of economic and regulatory issues, they are unlikely to go away altogether, according to a survey of companies by human resources consultancy Towers Watson.
About half of the largest companies that once offered defined benefit pension plans still do, and many of them aren't quitting, says Alan Glickstein, a senior retirement consultant at Towers Watson. "There is a diverse range of opinion among companies about what kind of pension plan to offer. Companies that enthusiastically offer defined benefit pension plans understand them and understand their appeal to employees. We believe that many of them will continue to do so," Glickstein says.
Defined benefit pension plans were never a universal form of retirement planning. Among Fortune 1000 companies, 40 percent never offered one, Towers Watson points out. Conventional defined benefit pensions were very popular for about 30 years after the end of World War II, but by the mid-1980s, regulatory changes had encouraged employers to look at other options, including 401(k)s and a hybrid of defined benefit plans known as cash balance plans.
In a 401(k) plan, employees are responsible for making all or most of the contributions and deciding how to invest the money. In a cash balance plan, employers make all the contributions and decide how to invest the money. One of the big trends of the current decade, Glickstein says, is a merger of features of all three of these plans with a model emerging in which employers and employees contribute, and investment decisions are made by employees with considerable assistance by investment experts provided by employers. "You are going to see more new features in these plan designs that make all of them work better," Glickstein says.
The bottom line is that all of this change makes it increasingly important for workers to consider whether their employer or potential employer is committed to providing a retirement plan and to examine whether what's offered is up to date and designed well enough to allow a long-term employee to retire securely.