SURVEY SAYS: Will DBs Make a Comeback?

Nearly seven in 10 responding readers leaned towards no, with 24% each saying it is possible, but not likely and no, not for any reason, and 21% indicating DB plans would not make a comeback, but more automatic features will make defined contribution (DC) plans look like DBs. On the other hand, 13% said DBs will make a comeback if the government eases up on regulations and the economy improves, and 9% said they would make a comeback as employers realize their benefits and that DC plans cannot provide a secure retirement for employees.  

Nine percent chose “other,” and those responses included: 

• Hybrids with a small accrual for a limited DB annuity and a DC with more automatic features. 
• No. Liabilities assumed by business need to match annual time horizon due to volatility of business environment. 
• DC plans will become more like DB plans offering lifetime income funds 
• Yes, but not in their current form. 
• For my kids sake, I hope so. 
• Too costly for employers, it would be less expensive for employers to offer an employer contribution ( in addition to company match) within theri 401(k). 
• I hope so! Even more so as my hair has turned gray(er)! 

In the verbatim comments, while many readers expressed hope that DBs would come back, the majority were negative about this happening; one reader even responded “HAHAHAHAHAHAHA.” Responding readers mentioned that the cost of DB plans would always be too prohibitive for employers, and that regulations made them too burdensome. Those who were more positive about the likelihood of DBs returning to favor said it will happen when lessons are learned, the majority of retirees are living in poverty, or because history tends to repeat itself.    

Editor’s Choice goes to the reader who said “It would be great if they did become a lot more prevalent. Ensuring a reliable measure of economic security once people are no longer able to work would be a great gift.” 

Verbatim  

I'd sure be pleased if DB plans make a comeback, but mostly because I'd like to have one provided to me. Ultimately, the regulations and premiums required are not cost efficient for businesses, so I'm not anticipating that they will make a comeback in sufficient time to fund my retirement. 

not going to happen in our organization 

I think the pendulum will swing back to DB plans or their equivalent when a sufficient portion of the retired population is living in extreme poverty -- the younger folks will learn from the mistakes of the past -- at least they should hope so. 

Everything we see on the horizon indicates that workers will not spend enough time at a single firm to receive a worthwhile pension. In the future, employees will jump from job to job to take advantage of the highest salary and benefit package available. The promise of a DB pension sometime in the remote future will not be enough to keep an employee with a firm. In addition, management’s response to the “Great Recession” has included jettisoning DB Plans to eliminate the ever increasing future obligation funding requirements. No one I know in the HR field or in management wants to be involved in trying to keep pensions afloat. 

The under-funding issue still remains with DB plans that are currently in effect. 

DB's could make a comeback for Employers who have 25-35 (maybe up to 50) EE's or less, but I don't see them coming back for your big plan sponsors. 

I'm still hoping for some nuance between a DB and DC, and it is NOT a Cash Balance vision. 

Forget it - it costs employers more. 

Like the dog chasing its tail the obvious became obvious later than sooner and in one form or another we will either move back to hybrid DB plans where both employee and employer contribute to the plan or hybrid DC plans which offer some form of guaranteed retirement income you can't outlive. 

The government needs to get out of the way, companies need to re-think the whole "profit-at-any-cost" mindset and be willing to invest in their employees as well as their investors. 

Hmm, my response is stuck between "... like a snowballs chance in hell." and "...once in a blue moon." 

It may take some time, but eventually it will become painfully obvious that DC plans cannot deliver the same level of retirement benefits as the DB plan can. Most employees are simply not equipped to or interested enough in investing to be able to produce a plan that results in a guaranteed replacement income at a level that will allow them to live in retirement as they choose. Couple that with the risks an individual faces compared to a large group with an indefinite life such as significant market downturns, inflation, etc with the higher costs they incur, especially in smaller plans and the DC plan can't compete. 

I wish they would, but no. The NFL almost ruined a $10billion business because they wanted to convert their pension plan for officials to a DC plan...what makes you think other companies are willing to do otherwise??!! 

DB plans could return if they can be structured as "longevity tail" plans that supplement DC plans or as Variable Annuity Plans (which are already permitted under a 1953 Revenue Ruling). 

Risks are still too high, and employers are looking to reduce risk rather than take on additional obligations. 

Verbatim (cont.)  

It would be great if they did become a lot more prevalent. Ensuring a reliable measure of economic security once people are no longer able to work would be a great gift. 

Absolutely not! Employers are looking to terminate their plans and are freezing benefit accruals in the meantime until they can afford to terminate them. 

Current markets involve too much risk for employers to be willing to offer a guaranteed benefit/annuity at retirement. 

I certainly hope so. They have been one of the better solutions preventing a lot of retirees from falling into poverty. Many seniors retiring without a DB plan and only relying on what they have in a 401k and social security find themselves in an uncertain and insecure financial situation. And those who retired from companies without even the benefit of a DC plan and are just relying on social security - heaven help them. 

DB's are just too costly to run and in order to keep the younger people on staff I think they need to see the fund right now not as a future benefit. 

The factors presented in the paper are valid but present a bit too rosy of a depiction of the benefits of DB plans to plan sponsors. While the benefits are certain to the participants, the costs far outweigh the corporate interests of providing retirement security for workers. With current administration, the lack of regulatory clarity will make providers keep playing their cards very closely to their chests. 

I normally don’t respond to surveys, but I felt compelled to do so today. Of course, I do not have the time to fully research this reply, nor to fully explain each point, but here is my off-the-cuff response. I began in this business in 1982 and by 1990 I was at a consulting firm and terminating all of the small DB plans that could no longer use age 55 normal retirement with a 100% joint and survivor normal form due to legal judgments/regs. The equity market at that time was producing phenomenal results so we all bought into the idea that employee self-directed investments (via 401(k) arrangements) would always do better and produce a much higher benefit than the boring old pension plans. That type of market for DC plans, along with rising administrative/actuarial/PBGC premium costs on the DB side led to the medium and large size DB plans dwindling in number. Government regulations kept piling on over the years and the equity market has had severe downs (and ups) so both DC and DB plans have had their blemishes revealed: DC because of volatility for the participant and DB because of uncertainty and volatility in funding for the company. Will we go back to DB plans? Yes, because history repeats itself. But the DB benefit formulas of the future will not be very rich and the investment strategies will lean toward security. When equity markets have 3 or 4 years of sustained growth we will again hear the cry for employee self-direction and the cycle will repeat. Cynical? Yes. Over regulation is the fundamental problem (and this is not limited to retirement programs). Don’t get me wrong, we do need some regulation to fend off the bad guys, but let the creativity of the free market do its job. Am I correct? TBA. 

We will likely see plans with DB and DC features. Employees will stop participating in 401(k) plans if the economy takes another turn for the worse. 

The likelihood of DB Plans making a comeback is about as likely as cooked bacon being delivered to my desk via hoverbot 

Verbatim (cont.)  

I am sure the public is aware that many of us in our 40's, 50's and 60's are ill prepared for retirement. It isn't that we haven't saved, it that we have had a lot of financially bumpy times in the last 30 years. Those that had secure jobs and income have not been as affected, but everyone has been affected in some way. There have been job shortages in the 80, 90 and now the 2000's. Many of those that have been unemployed have been come back with lower pay. With lower wages, add in increasing expenses for homes, children and sometimes parents, coupled with higher taxes, fuel, utilities, food, costly higher education and other necessary expenditures have made it so much harder to save an adequate amount for retirement. Actually, what is going to happen is these, "experts" will moan about the inadequacies of DC plans and get everyone upset and then nothing will actually occur. The only thing that will re-energize DB plans is the passage of favorable tax legislation making them desirable. The repeal of legislation is what made them undesirable in the first place. 

I don't like to be a pessimist, but I'd say it's extremely unlikely. Plan sponsors have not been asking how they can increase their expenditures on employee benefits. 

Two chances this will happen - slim and none. 

it would be a great benefit for employers to offer both a DB and a DC plan. However thos costs for a DB plan would likely mean cuts from other benefits. Nothing will change until employers feel a need to retain employees. Additionally the new generation cannot sit in their seats for 5 minutes much less stay with an employer for 6 months 

It's the right thing to do. I'm retired with 5 DB pensions and there is no way in heck that DC plans could have matched even close to their PV. 

In this day in age, when so many employees jump from job to job, it just doesn't seem as good of an option anymore since you can't build up the service credits needed for a really good pension. 

I'll tell you for sure on November 7. Likely that DB plans will end up in a museum next to T-Rex, but I do think the pendulum will swing back slightly as annuity option are added to DC plans and auto enroll becomes the norm. 

It's all about the individual taking the investment risk that business and govmt won't take on. 

Excessive legislation and regulation has caused the substantial decline of the defined benefit plan. The cost of compliance is greater than the benefit of the plan. The rules need to be rolled back to pre TRA-86 in order to get employers interested again. 

In spite of the best efforts by employers and consultants to equip 401(k) participants with the capabilities, information and options to become successful retirement planners, I fear we are watching a slow-motion train wreck. Many, BUT NOT ALL, participants get the fact that they need to start saving early, diversify their investments and regularly rebalance their portfolios to have a fighting chance they will have enough to retire when the day comes. Auto enrollment and target date fund features wont get the job done for for those who are less-equipped or less disciplined. There is a meaningful place for DB plans. 

Too much risk...it will take a long time for corporate America to forget the lessons learned about unfunded liabilities as a result of market volatility. And I don't believe the U.S. economy will ever return to a status which would allow for full funding in the long term. Too much greed in the short term. 

Oveer the long hall DB plans may be more cost effective as retirement plans that can take advantage of a growing economy, but the volatility of funding requirement make them unattractive 

Perhaps I need to do more research, but I cannot picture any employer wanting to tie on the anchor of a DB. What incentives could the government offer that would make DB an advantage to them? I contribute to a well-matched 401(k) plan, but my employer doesn't subsidize retiree anything. 

HAHAHAHAHAHAHA 

Verbatim (cont.) 

 The combination of a fixed future liability and a very uncertain future make it difficult to justify having a DB plan 

DB plans should make a comeback but in design and funding they need to truly recognize the long term. Just like many governments, "too big to fail" is the short term thinking which caused the DB to fall out of favor. While people failed to understand what they created, they decided to "kill them before they spread" 

The reason they're being closed down in favor of cash balance plans is that they're too expensive. Why, in this economy, would they be making a comeback? What company is going to fund one? 

There are too many government hoops for companies to deal with on these types of plans. And the PBGC premiums keep going up even though our plan is fully funded. As an employee I would like to be covered by one, but I don't see it happening. 

DB plans were never as prevalent as people seem to think - nor, for the vast majority of private sector workers - did they provide the benefits they might have. Regardless, the accounting environment is such that employers are completely discouraged from taking on such huge financial risks - particularly for a workforce that never really seemed to appreciate the benefit. Instead of incessantly looking back over our shoulders wistfully at a plan structure that never really (in the private sector) provided those benefits in a broad-based fashion, we should be looking for ways to help the current system live up to its promise. Unless, of course, you like the notion of living in Greece... 

Until they change the accounting rules, DB = Dinosaur Benefit. Extinction is imminent. 

Large, publicly-traded employers are generally so interested in short term earnings and so little interested in the welfare of their employees, it is impossible to imagine any real move to bring back DB plans. 

Our DB Plan for Police Officers and Fire Fighters is still underfunded, but on the road to full recovery. 

This is a fantasy of those in the business of selling those plans, and those in Washington who they hope to persuade(many of those don't NEED persuading, of course). At an individual employer level, the math doesn't work, the workers mostly don’t care when you want them to, and the accountants keep changing the rules... Most never had DB, and most of those never earned the service credits to get the promised benefit. Time to live in the real world, people. 

NOTE: Responses reflect the opinions of individual readers and not the stance of Asset International or its affiliates.