WASHINGTON — A recent Watson Wyatt survey found that many companies are enhancing contributions to their defined contribution plans such as 401(k)s.
The survey of 300 large employers found that 40% have replaced their defined benefit pension plans with a DC plan as their main retirement vehicle for new hires over the past 10 years. More than three-quarters of these companies made enhancements to their DC plan after freezing or closing their DB plan, with 52% introducing or increasing a non-matching contribution.
Companies that offer new hires only a DC plan contribute, on average, a maximum of 5.82% of pay, including matching and non-matching contributions, to employees' DC plans. Employers that offer new hires both a DB and a DC plan contribute an average of 4.41% of employees' pay to their DC accounts. While employers that have shifted from DB plans to DC plans contribute an additional 1.4% of pay to employees' DC plans, these additional contributions replace only a portion of the benefit provided by a DB plan, typically valued at 5.5% of pay.
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"With the change in markets and the increasingly diverse workforce, retirement plans have also been in flux," said Alan Glickstein, senior retirement consultant at Watson Wyatt. "Most employers that have changed retirement designs have also enhanced their 401(k)s. The question is whether this will provide enough security for employees to retire when their employers think they will."
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