Hybrid Pension (Cash Balance) Plans Become More Prevalent Than Traditional Pension Plans for the First Time

WASHINGTON, D.C., May 11, 2009 — For the first time, the majority of Fortune 100 companies now offer new salaried employees only a defined contribution (DC) plan, such as a 401(k), according to a new analysis by Watson Wyatt, a leading global consulting firm. In another first, more Fortune 100 companies offer hybrid pension plans, such as account-based cash balance plans, rather than traditional defined benefit (DB) plans.

Today, 55 companies in the Fortune 100 offer only DC plans to new hires, a jump from 46 at the end of 2007. The most recent number includes four companies that announced in 2009 they will switch from a DB to a DC-only plan. 

Fortune 100 Companies Continue Shift to Only DC Plans *

*Numbers indicate plans offered to new salaried hires at the end of each year. The “2009” column includes changes made this year and announcements of future plan changes through May 8, 2009.

“We’re entering a new world for retirement benefits,” said Alan Glickstein, senior retirement consultant at Watson Wyatt. “With many current and especially older workers still covered by closed or frozen pension plans, new and younger employees will be the first generation to rely on 401(k) plans exclusively for their retirement savings. It’s a big burden for them to carry as recent events have made all too clear.”  

Among those companies still offering DB plans, 22 have traditional plans and 23 offer hybrids such as cash balance plans. Cash balance plans reduce volatility for employers while providing more visible benefits for employees than traditional DB plans. Participants in cash balance plans have continued to see their pension accounts go up during the financial crisis in marked contrast to most 401(k) accounts.

“With the economic downturn and full impact of legislative and regulatory changes such as the Pension Protection Act still playing out, we can expect more plan design changes on the horizon,” said Kevin Wagner, senior retirement consultant at Watson Wyatt. “The trend toward account-based plans is likely to continue because of their visibility and transparency. With the exposed weaknesses in 401(k) plans and the ever-present need to manage the workforce, more companies might opt to provide hybrid plans, now seen as a viable alternative to offering only a DC plan. However, to reduce costs, companies might instead continue cutting back on employer-sponsored retirement benefits in general. The two paths will have significant, yet very different, implications for the retirement of millions of workers.”

For further information, please contact:

Ed Emerman
609.275.5162
eemerman@eaglepr.com

Steve Arnoff
703.258.7634
steven.arnoff@watsonwyatt.com

About Watson Wyatt

Watson Wyatt (NYSE, NASDAQ: WW) is the trusted business partner to the world’s leading organizations on people and financial issues. The firm’s global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,700 associates in 33 countries and is located on the Web at www.watsonwyatt.com.