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A Watson Wyatt analysis of 183 employers found that the total retirement benefits -- DB, DC and retiree health plans -- provided to employees decreased from 7.8 percent of pay in 2002 to 6.9 percent of pay in 2008. For the 79 companies that maintained DB plans throughout this period, the value of the overall benefits declined from 9.4 percent to 8.6 percent of pay, mostly due to a significant cut in postretirement health benefits. In the same time period, the 61 companies that provided only a DC plan saw a small increase in overall benefits value -- from 5.3 percent to 5.6 percent of pay -- due to enhanced employer contributions.
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."
For more information, please visit: www.watsonwyatt.com/employercommitment
About Watson Wyatt
Watson Wyatt (NYSE, Nasdaq: WW | Quote | Chart | News | PowerRating) is the trusted business partner to the world's leading organizations on people and financial issues. The firm's global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,700 associates in 33 countries and is located on the Web at www.watsonwyatt.com.
SOURCE Watson Wyatt
http://www.watsonwyatt.com
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