The number of defined benefit (DB) plans in the U.S. has been declining since their peak in 1983, when the Department of Labor (DoL) reported more than 173,000 DB plans. Today, the DoL estimates that as few as 47,000 DB plans are still in effect, meaning competition is stiff among a small list of providers (relative to the defined contribution market) who deliver administrative services to this market.
Bigger Is Better. This year’s survey includes 36 leading providers of defined benefit administration services, covers more than 12,000 plans and involves more than 33 million participants. With 85% of plans representing single-employer corporate plans, the survey accounts for a significant portion of the 41,820,000 corporate DB participants reported by the DoL in its most recent Private Pension Plan Bulletin.
Strength in Numbers. Of those providers reporting both 2010 and 2011 data, 53% added DB clients to their platforms in 2011 and 62% added DB participants. Overall, the survey saw an increase of 1,118 DB plans and 1.31 million participants from 2010 to 2011. Provider consolidation also continues to play a role in building scale and efficiency, with nine of the 36 listed providers (25%) having closed acquisitions within the past two years.
Split Identity. The total count of clients with less than 10,000 participants increased collectively by 4.7% in 2011, while the total count of clients with more than 10,000 participants was unchanged. Whereas larger plans certainly are facing more pressure to freeze or terminate underfunded plans, smaller employers appear to be much more willing to offer or outsource DB plans to DB administration providers.
More the Merrier? Ninety-two percent of DB client relationships involve some sort of bundling of services. One in three clients (31.4%) has its DB and DC plans serviced by the same provider while six in ten (57.9%) bundle other DB services—actuarial services, investment management, trust and custody—with plan administration. Only 8.0% of clients use their provider for “DB Only” administration.
Frostbite. The number of frozen plans decreased in 2011 (to 3,515 from 3,820), while the number of terminated plans increased in 2011 (to 209 from 186). Overall, plan closure and freezes may be slowing slightly, as active or open DB plans now account for 64.1% of all plans, up slightly from 62.2% in 2010.
Offline? On average, providers report fewer participant actions occurring online. Last year, providers reported on average that 58.7% of participant interactions occurred online versus an average of only 52.7% this year.
Check, Please. The overwhelming majority (87%) of new-participant retirement payments processed in 2011 were in the form of installment or annuitized payments. Another 8% involved lump sum payments direct to the participant, and only 5% were in the form of a lump sum rollover.
DB(k) Not O(k)? Some noise was made during the passage of the Pension Protection Act about DB(k)s. To date, just three providers have implemented only eight DB(k) plans, the same number of plans reported last year. It is unclear what role this product will play in the future of DB and DC plan design.
For detailed Excel report information about the providers that follow, including information not published, please contact Brian O’Keefe at email@example.com.
Click HERE to view PLANSPONSOR's complete 2012 Defined Benefit Administration Survey.