The remaining 43 companies in the sample of 183 transitioned from DB to DC-only coverage between 2002 and 2008. Although these companies increased their DC benefit values by an average of 2.7 percentage points, this gain covered only approximately half of the DB value loss that was incurred by closing or freezing plans. For these companies, overall commitment fell substantially, from 8.7 percent of pay in 2002 to 5.5 percent of pay in 2008.
"The tumult of the last decade, with its market bubbles and crashes, two recessions, rising health care expenses and compensation pressures, has caused employers to scramble to look for savings," said Jim Shaddy, North America retirement practice director at Watson Wyatt. "As a result, a number of employers have pushed some of the risk and cost in their retirement plans onto employees' shoulders."
An analysis of a larger data set of more than 600 companies found that some industries - manufacturing, transportation (including the airline sector) and communications - experienced declines greater than 30 percent in their retirement plan values from 1998 to 2008. Other more profitable industries, such as chemicals, drugs and pharmaceuticals, had a smaller decrease in the same time frame, or in some cases (e.g., the health care sector) even a small increase, although from a lower level.
"In difficult times, when employers are under pressure to alleviate escalating costs and displace risk, reducing retirement benefits can be seen as the easy solution since it is comfortably far off," said Kevin Wagner, senior retirement consultant for Watson Wyatt. "However, companies can benefit from considering the impact of their actions on the retirement adequacy of their workers' benefit plans while also thinking about new solutions, such as hybrid plans, which can provide secure retirement income as well as lower risk for employers."
