Remember the good old days when everyone retired with a DB pension? If you do, your memory is not very good, according to many speakers at a session that The Pension Research Council held at Wharton recently. “Reimagining Pensions: The Next 40 Years” marked the 40th anniversary of ERISA. Though workers in DC plans struggle with two impossible tasks — market volatility and longevity — that are the responsibility of employers in DB plans, not as many workers were covered as you may have thought.
EBRI’s Dallas Salisbury said that the move away from DB plans had little or no effect on most workers because they are not portable. Though research shows that at one point 40% of workers had access to DB plans, a much lower percentage actually were covered because they left their company before they vested. In fact, Salisbury pointed out, the median tenure for workers dropped from 15 years to just over 10 years from 1983 to 2012.
One large employer said they found no evidence that DB plans help companies attract or retain employees. That flies in the face of Towers Watson research involving companies in 12 countries which found that 75% of workers would stay with an employer that has a DB plan until retirement, compared with 55% of workers at employers that have a DC plan.
Regardless, very few if any major corporations are willing to take on the risks of a DB plan, with many freezing benefits and offloading risks to third parties. So DC is the present and the future — and, as it turns out, much of the past as well.
