Employers Revising Traditional Pension Plans, Survey Finds

While many employers continue to cut “traditional” pension plans, many are adding to 401(k) benefits, a new survey finds.

The Employee Benefit Research Institute says in its new report that about two-thirds of defined benefit pension sponsors have either closed the plan to new hires, frozen it for all participants in the last two years, or plan to do so in the next two years.

EBRI points to new funding requirements in the Pension Protection Act of 2006 and pending accounting rules by the Financial Accounting Standards Board as the main culprits.

However, EBRI finds a majority of employers that have already closed their pension plans have increased contributions to workers’ 401(k)-type plans. Many planning new limits on their pension plan may do the same, according to the study.

EBRI calls these findings “significant” because they indicate that reductions to workers’ “traditional” pensions are being partially offset by added benefits on the 401(k) side. In addition, employers that are reducing pension benefits are adopting “automatic enrollment” of their workers in 401(k) plans, which research has shown could significantly increase retirement coverage and savings.

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Study author Jack VanDerhei notes a trend among employers that are reducing their traditional pension benefits to add automatic enrollment in their 401(k) plans and increase the 401(k) benefits for workers whose pensions are affected.

“Changes are occurring on both sides of the retirement plan ledger — workers’ retirement wealth is being affected both negatively and positively at the same time,” he said.

Among plan sponsors that closed their defined benefit plan to new hires in the last two years, 78% reported they would increase employer contributions to the defined contribution plan, typically a 401(k) plan.

For those that plan to close their pension in the next two years, 80.9% reported they would increase employer contributions to their defined contribution plan. A total of 162 plan sponsors participated.

Elaine Rigoli has nearly 15 years of experience managing content and community for various B2B and consumer websites. Elaine has written thousands of business and technology articles and has been quoted in The Wall Street Journal and eWeek, among other publications.

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