Watson Wyatt Worldwide News
Employers Enhancing 401(k)s to Compensate for Retirement Plan Changes, Watson Wyatt Finds
WASHINGTON,
The survey of 300 large employers found that 40 percent have replaced their DB plan with a DC plan as their main retirement vehicle for new hires in the past 10 years. More than three-quarters of these companies made enhancements to their DC plan after freezing or closing their DB plan, with the majority (52 percent) introducing or increasing a non-matching contribution.
"With the change in markets and the increasingly diverse workforce, retirement plans have also been in flux," said Alan Glickstein, senior retirement consultant at Watson Wyatt. "Most employers that have changed retirement designs have also enhanced their 401(k)s. The question is whether this will provide enough security for employees to retire when their employers think they will."
Virtually all surveyed companies (97 percent), regardless of their current DB status, contribute to their employees' DC plans. Companies provide two types of contributions: matching contributions, which are contingent upon the amount an employee contributes to the plan, and/or non-matching contributions, which are made regardless of whether the employee contributes to the plan.
Companies that offer new hires only a DC plan contribute, on average, a maximum of 5.82 percent of pay, including matching and non-matching contributions, to employees' DC plans. Employers that offer new hires both a DB and a DC plan contribute an average of 4.41 percent of employees' pay to their DC accounts. While employers that have shifted from DB plans to DC plans contribute an additional 1.4 percent of pay to employees' DC plans, these additional contributions replace only a portion of the benefit provided by a DB plan, typically valued at 5.5 percent of pay, according to Watson Wyatt's COMPARISON, a comprehensive benefits database.
Although a number of companies have moved to a DC-only environment, the majority of companies studied still offer DB plans to their new, salaried employees — and most of these companies (59 percent) are committed to offering them in the future.
One way that companies have been able to stay committed to a DB approach while shifting to an account-balance plan design is by converting their traditional plan to a hybrid plan. Nearly one-fourth (24 percent) of surveyed companies adopted a hybrid plan during the last 10 years. Hybrid conversions accelerated in the late 1990s but declined in the early 2000s because of increased uncertainty in the legal and regulatory environment.
"With recent regulatory and legal changes, hybrid plans will only continue to grow in popularity," said
Copies of the survey report, Retirement Plan Design: Past, Present and Future, are available at http://www.watsonwyatt.com/retirementplandesign.
About Watson Wyatt Worldwide
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 7,000 associates in 32 countries and is located on the Web at http://www.watsonwyatt.com.
SOURCE Watson Wyatt Worldwide
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