Employers continue to close, freeze plans

Two-thirds of defined benefit pension sponsors have either closed their plans to new hires or have frozen such pensions for all participants in the last two years. This, according to a study by the non-partistan Washington-based Employee Benefit Research Institute and New York-based Mercer Human Resource Consulting. However, the study finds that the vast majority of employers that have closed the plans have also increased contributions to workers’ defined contribution plans. Meanwhile, employers that are reducing pension benefits have adopted automatic enrollment for their workers in their 401(k) plans. “There is a clear trend among employers that are reducing their traditional pension benefits to add automatic enrollment in their 401(k) plans and increase the 401(k) benefits for workers whose pensions are affected,” said study author, Jack VanDerhei, Temple University and EBRI Fellow in a statement. “Changes are occurring on both sides of the retirement plan ledger—workers’ retirement wealth is being affected both negatively and positively at the same time.” The data shows that among private workers who have a retirement benefit at work, about 37% have a defined benefit pension and about 63% have a 401(k)-type defined contribution retirement plan. Looking forward, 33% of respondents that had not already changed their defined benefit plan, indicated they are likely to make a change in the next two years. The most common change was to close the plan to new hires or freeze the plan for all participants.