A new report suggests that defined benefit pension plans, under pressure on several fronts, are disappearing at an increasing pace.
The report, by human resources consulting firm Watson Wyatt, found that the number of Fortune 1000 companies that have frozen or terminated their defined benefit pension plan has risen dramatically in the past two years.
As of April 2006, 113 companies within the Fortune 1000 had at some point frozen or terminated a defined benefit plan or have announced plans to freeze or terminate a plan. That was true for 71 members of the 2004 Fortune 1000 list, and only 39 members of the 2002 list.
Watson Wyatt said a recent study of just the 100 largest firms showed similar trends.
Watson Wyatt’s numbers do not provide a direct year-on-year comparison, because the companies that comprise the Fortune 1000 vary from year to year. Altogether, there were 627 defined benefit plan sponsors in the Fortune 1000 in both 2004 and 2005, down slightly from 633 in 2003 and 638 in 2001.
Meanwhile, the number of companies that closed a plan to new hires or announced plans to do so also has increased, from 25 to 49 since 2004. Sylvester J. Schieber, director of U.S. benefits at Watson Wyatt, said these statistics are especially discouraging, since they indicate a trend with long-term implications for future generations of workers.
When defined benefit pension plans are frozen, current plan participants receive no additional benefits from either additional tenure or increases in compensation. When plans are terminated, participants are either given an annuity or a lump sum payment.
Among all companies, Watson Wyatt identified 162 that had at least one plan that was frozen, terminated or closed to new hires as of April or had announced plans to take such action in the future, compared with 96 in 2004.
|Pension Plan Sponsorship Among Fortune 100 Firms|
|Fortune List||Number of defined benefit plan sponsors||Number of plan sponsors with frozen or terminated plan|
|Source: Watson Wyatt Worldwide|