AARP Eye Center
Nearly Half of Large Employers Shifting Retirement Saving Burden to Workers
By Carole Fleck, October 22, 2012 01:10 PM
Boomers and younger workers don't have much to celebrate in a new report on retirement plan trends among big employers. It shows that 80 percent of companies with more than 1,000 employees offer a defined benefit pension plan, but within five years, that will change. And not for the better.
Thirty-five percent expect to continue to offer pension plans to existing employees but not new workers, 13 percent will likely freeze their plans and 10 percent say they'll terminate their defined benefit plans altogether, according to the report by Diversified, a retirement plan provider.
The trend to shift the burden of retirement saving to workers is also evident in this finding: about half say they've created a defined contribution plan such as a 401(k) as a replacement. Of course, we all know that 401(k)s are tied to the volatile financial markets, making our retirement plan balances somewhat unpredictable. By contrast, pension plans generally offer guaranteed payments for life regardless of market swings.
[See buying your own pension].
Meanwhile, companies looking to transfer their pension obligations - think General Motors and Ford - are also part of a similar trend. Verizon is now the latest to join these automakers, and several other companies, that recently transferred the pension obligations of many retirees and former workers to an insurance company for payout. GM and Ford also offered lump-sum buyouts for those who chose not to continue receiving their pensions under a new administrator.
But these moves may not be in the best interest of workers and retirees, according to the nonprofit Pension Rights Center. It's calling for a moratorium on pension transfers and plans to urge Congress to examine the risks posed by these strategies to workers and retirees.
"These employers are looking to cut costs and reduce long-term liabilities to make their companies more attractive to investors, but [this] can be risky for workers and retirees," Karen Friedman, the center's executive vice president and policy director, said in a statement.
"Also, lump sums place the burden on individuals to ensure that the money lasts throughout retirement," she says. "We need to stop, take a breath, and make sure that the retirement security of the people affected by these moves is fully protected."
But back to the Diversified survey, which polled more than 270 executives responsible for the administration of retirement benefits.
It says about 95 percent of all large corporations offer a 401(k) plan. In a growing trend, about half say they use a financial adviser to help their workers save and invest wisely, and an additional third are considering doing the same.
Other findings of the report:
- 69 percent of workers contribute to their 401(k) plan, the same percentage as last year, but the average amount they save dropped to 6.7 percent in 2012 from 8.8 percent last year.
- 56 percent of employers report that motivating employees to save adequately is "extremely" or "very" challenging.
- 95 percent of companies contribute to their workers' 401(k)s, and 84 percent use a matching formula.
- 20 percent of companies believe that workers understand their plan's fees "very well" and 34 percent report that participants don't understand the fees.