Their numbers have dwindled for years but fewer of the Fortune 500 moved out of defined benefit plans last year than at any time in the past decade, according to research from Towers Watson.
Only five of these large employers shifted out of their defined benefit program and into a defined contribution plan in 2013, leaving 118 still doing so. By comparison, 16 of the Fortune 500 dropped their DB plans between 2011 and 2012.
That said, the number of large employers offering defined benefit retirement plans to new hires has hit an all-time low of 34. In 1998, that number was 251.
Defined contribution plans, meanwhile, have been on the rise. In 1998, 195 of the Fortune 500 offered DC plans only to employees. By last year, 382 companies offered only such plans.
Why is the exodus from defined benefit plans slowing? It could be nothing more than because the number of employers offering traditional defined benefit plans has become so small.
Meanwhile, hybrid defined benefit plans — those that incorporate a cash balance plan with a traditional pension — have held relatively steady over the past 15 years. Towers Watson found that more than half of the employers that offered a hybrid plan in 1998 continued to offer one to new hires in 2013.
Allen Glickstein, senior retirement consultant at Towers Watson, said the numbers over the past 15 years speak for themselves: the responsibility, and the risk involved in growing retirement assets, is being shifted to employees.
“Employees must increasingly take ownership of managing their own contribution levels, investments and distributions,” said Glickstein.
But shifting the responsibility has meant employers have assumed new risk as well, explained Glickstein. Workers may delay retirement if their target date coincides with a down market, and that can result in higher employee benefit costs, such as health care claims, and less mobility in their organizations, which can mean higher compensation costs to sponsors.
There are certain sectors of the economy that are still favoring defined benefit plans, according to the latest data. The utilities and insurance sectors, for example, are retaining their defined benefit plans.
About 66 percent of insurance companies and 59 percent of utility companies still offer a defined benefit plan, along with a defined contribution plan, to new hires.
“It’s noteworthy that DB plans still serve certain industries and companies well, especially those with particular talent and retention needs,” said Kevin Wagner, senior retirement consultant at Towers Watson.
Wagner said that the broader shift to defined contribution plans has fueled concern over employees’ ability to retire comfortably.
“As a result, employers will need to carefully consider their overall retirement plan strategies to make sure whatever plans they offer new employees will help them with their retirement readiness efforts and align with their expectations,” he said.