In fact, according to Diversified Investment Advisors’ news release about its poll, many employers now field more than one DB plan. Some 72% offer an active traditional plan, while 43% offer a cash balance plan.
Cash balance plans have increased in popularity; for example, among firms with 1,000 to 4,999 employees, 41% offer an active cash balance plan compared with less than 20% three years ago.
But that doesn’t mean sponsors have escaped the funding backlash from the economic turmoil. According to Diversified, 85% of defined benefit plans are less than 80% funded. Specifically, according to Diversified’s study, only 4% of plans are 100% funded today, and only 10% expect to be fully funded by 2013.
Coming up with the funds for an unbudgeted contribution is significantly harder than it looks. Thirteen percent of plan sponsors that need to make an unbudgeted contribution in 2009 say that these contributions actually threaten their very existence, and 42% expected to make job cuts as a result of these unbudgeted contributions, Diversified said.
More likely, however, the requirement to make unbudgeted contributions will result in benefits cuts (55%) and increased employee contributions to the cost of benefits (45%). Among sponsors with an active defined benefit plan that are most affected by funding shortages, 32% said they have negotiated fee arrangements with their plan provider.
To help ease the backlash against existing plans, nearly one-half of the plan sponsors surveyed already have implemented liability-driven investing. Of these sponsors, 37% are projecting 90% or better funding by the year 2013, compared with 26% of plan sponsors that do not use liability-driven investing.
“But these numbers do not tell the whole story. While defined benefit plans may be winding down in many sectors in an effort to control costs, the majority of large corporate employers still offer a defined benefit plan, something they find has a major impact on recruiting,” said Laura White, vice president of marketing at Diversified.
Other findings include:
- Bundling is now used by 79% of defined benefit plan sponsors.
- Nearly one-quarter of employers that offer both a defined benefit and a defined contribution plan have totally outsourced administration of their retirement plans to a third party. More than one-half are currently considering the option as well.
- Ninety percent of companies that employ total retirement outsourcing (TRO) are either satisfied or very satisfied with the arrangement, citing such benefits as reduced plan costs, convenience to employees, and ease of data management.
- Of active defined benefit plans, the majority (52%) communicate about the plan through the firm's intranet site, print materials (49%), and the Internet (48%).
"Report on Retirement Plans - 2009 underscores that even in the face of historic volatility and tremendous financial challenges, employers are dedicated to finding a way to offer a competitive benefits package and help their employees save and invest for their retirement," said Patrick Kendall, vice president and defined benefit practice leader at Diversified.
The poll was conducted by Diversified Investment Advisors, Inc., and administered by EACH Enterprise, LLC, among U.S. companies with at least 1,000 employees. The survey featured responses from 279 individuals responsible for the administration of retirement benefits in their companies.
A copy of the study is available at RetirementResearchCouncil@divinvest.com .
« Employer Loses again with Accusation of Computer Theft