Employers Say DB Plans Equal Employee Retention

September 7, 2004 (PLANSPONSOR.com) - More than eight out 10 (84%) companies that offer a defined benefit plan said the plan has a positive impact on employee retention.

Large employers are more likely to say their plan had a major impact on employee retention. For example, 58% of plan sponsors with 25,000 employees or more believe that their defined benefit plan has had a major impact on retention compared to 23% of companies with only 1,000 to 2,499 employees, according to a Diversified Investment Advisors’ report.

“Most employers see a tangible value in offering a defined benefit plan to their employees — despite the high costs typically associated with it,” said Chris Cumming, senior vice president and defined contribution plan business leader at Diversified. “In fact, nearly one-third of those employers said that defined benefit plans had a major impact on employee retention.”

To keep these plans viable, companies made substantial contributions to their defined benefit plans in 2003, with 30% contributing between $10 million and $99 million. Of those making contributions, publicly traded firms made higher employer contributions to their defined benefit plans than did privately owned companies. For example, more than 62% of public firms made $10 million dollars or more in employer contributions, while only about 20% of private companies did the same.

“Employer contributions in 2003 were larger than in recent years due in part to poor equity returns and low interest rates,” said Cumming. “But faced with the prospect of making substantial contributions to their defined benefit plans, companies recognize the need to be strategic about the future of their retirement packages.”

For example, 17% of employers said they plan to bundle defined benefit plan services with a single provider, while 31% will make other plan design changes.

Diversified Investment Advisors’ Report on Retirement Plans was conducted by Diversified Investment Advisors and administered by LIMRA International and FGI Research, Inc. among US companies with at least 1,000 non-union employees, including 122 publicly traded and 84 privately owned firms.