It’s no secret that DC plans have long been advancing at the expense of defined benefit plans. And while a recent report from the Department of Labor’s Employee Benefits Security Administration (EBSA) confirms that overall trend, it also shows surprising vitality among DB plans.
The EBSA's findings are based on an analysis of Form 5500s filed for the 2015 plan year. They are contained in the agency's recently released Private Pension Plan Bulletin.
The EBSA attributes the long-term shift from DB to DC plans to changes in employer behavior and worker characteristics and the arrival of 401(k) and other DC plans. It cites several explanations:
- The flexibility and convenience that 401(k)s offer regarding participation, contributions and allocation of funds.
- Changes in workforce mobility — workers tend to change jobs more frequently and DB plans are usually not transferable when an employee moves from one employer to another.
- Increasing costs of DB plans, including higher accrued benefits, early retirements and increases in life expectancy.
- A decline in industries that commonly offered DB plans.
Additionally, the EBSA notes that an increase in the number of DB plans that are closed to new participants suggests that the overall DB-to-DC trend is not going away.
DB Plan Vitality
Despite the long-term trend, EBSA reports that in 2015, growth among private DB plans outstripped that of private DC plans — the number of DB plans grew by 1.8%, while the number of DC plans went up by 1.2%.
Also, the increase in contributions was sharper for DB plans than for DC plans; contributions to DB plans rose by 10.9%, while contributions to DC plans grew by 7.7%.
But DC Plans March on
Private DB plan contributions may have grown at a faster pace than those to private DC plans, but that doesn’t mean the amount DB plans took in collectively exceeded that of DC plans. In 2015, EBSA says, DB plans took in $108.6 billion while DC plans took in four times as much — $434.6 billion.
DC plans may have grown at a slower pace, but the amount by which their disbursements in 2015 outstripped their contributions was smaller than was the case for DB plans. DC plans’ disbursements exceeded their contributions by $15.9 billion that year, while DB plans paid out $143.2 billion more than they took in.
And DC plans collectively held more than DB plans: in 2015, DC plans had assets of $5.3 trillion, while DB plans had $2.9 trillion.