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Retirement Planning > Retirement Investing

Fortune 200 companies shifting to DC plans for top execs

By Warren S. Hersch

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Most Fortune 200 companies now offer restoration plans to key executives in lieu of supplemental executive retirement plans, according to new research.

Towers Watson discloses this finding in an August 2014 report on executive compensation plans. The research explores 2013 Fortune 200 firms that froze or closed traditional defined benefit (DB) pension plans or converted the DB plans to hybrid arrangements that combine features of DB plans and defined contribution (DC) plans.

Restoration plans “restore” benefits that cannot be paid due to statutory limits on qualified plans, while SERPs typically offer enhanced benefits compared with qualified plans. SERPs and restoration designs may be structured as either DB or DC benefits.

The report reveals that 61 of the surveyed Fortune 200 companies adopted a DC-based restoration plan after freezing or closing a qualified DB plan for their executives. This compares with 44 companies that had a DC restoration plan before the transition.

Respondents adopting supplemental executive retirement plan or SERP also increased to four companies from two after a closing/freezing of their DB plan.

Of 76 companies among the Fortune 200 examined by Towers Watson, 34 closed their qualified pension plans and 42 froze them. Before closing or freezing their qualified plans, 73 of the firms had employer-paid (DB) executive retirement plans. After the sponsor froze or closed their qualified plan, that number dropped to 67.

“Given continuing scrutiny of executive compensation and a perceived disconnect between pay and performance in some quarters, these employers might have decided to link executive compensation and benefits more directly to company performance — for example, by providing more long-term incentives in lieu of retirement benefits,” the report states.

Six of the nine organizations that do not contribute to their executive DB or DC plans provide elective deferral opportunities for their executives.

“Mirroring the shift away from qualified DB plans to DC plans, only eight of these organizations provide an executive DB plan today, and 59 provide an executive DC plan as the main executive retirement plan vehicle,” the report adds.

Turning to rank-and-file workers, the report notes also that the number of Fortune 200 companies providing only defined contribution plans to newly hired salaried workers jumped to 72 percent in 2013 from 30 percent in 1998.

Read the full report here.

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