Increase in Defined Contribution Benefits Partially Offsets Overall Decline

NEW YORK--(BUSINESS WIRE)-- U.S. workers saw the value of their employer-sponsored retirement benefits -- as measured by percentage of pay -- decline by double-digit levels over a 10-year period ending in 2008, according to an analysis of eight major industries conducted by Towers Watson (NYSE, NASDAQ: TW), a global professional services company. A decrease in the value of defined benefit (DB) plans fueled the overall drop, although an increase in the value of defined contribution (DC) plans somewhat offset the total decline.

The Towers Watson analysis found that, from 1998 to 2008, the value of total retirement benefits provided to new, salaried employees in the eight industries studied declined by 19%, from 7.88% to 6.36% of pay. Total retirement benefits include DB and DC plans, retiree medical and retiree life insurance plans. The overall decline in total retirement benefits was mostly due to a 53% drop in the value of defined benefits, from 4.19% of pay in 1998 to 1.99% in 2008. DC benefits, meanwhile, increased by 38%, from 2.89% of pay in 1998 to 3.99% in 2008.

“Virtually all employers were under pressure to reduce the cost and risk of their company-sponsored retirement benefits during the years analyzed,” said Kevin Wagner, senior retirement consultant at Towers Watson. “However, just how much they changed their programs and what level of support they could provide varied significantly based on industry-specific factors, including talent supply, cost structure and globalization.”

According to the analysis, the largest decline in total retirement benefits from 1998 to 2008 occurred in the retail and wholesale industry -- a drop of 33%, from 5.72% of pay to 3.82%. Among the eight industries analyzed, only service industry workers saw the value of their retirement benefits increase — from 4.16% of pay to 4.30% of pay, an increase of 3%.

Total Retirement Contributions as Percentage of Pay — By Industry*

*Sample sizes analyzed vary across industry and year.

According to the analysis, the largest drop in the value of DB benefits from 1998 to 2008 occurred in the retail industry (81%), which, along with the service industries, also provided the lowest level of defined benefits at the end of the period. The value of DC benefits increased for all of the industries analyzed, led by the pharmaceuticals and health care industries, which experienced increases of 97% and 87%, respectively.

“This past decade witnessed a significant shift in retirement plans, as many companies replaced their traditional DB plans with DC and other account-based retirement plans for new workers,” said Wagner. “In the last few years, both the financial crisis and the Pension Protection Action of 2006 have been factors contributing to employers’ careful examination of their retirement plan strategies. The financial crisis also provided a wake-up call for employers to reevaluate their 401(k) plans, as their employees’ balances plummeted.”

About the Analysis

The Towers Watson Employer Commitment to Retirement analysis is based on retirement benefit data from an average of 642 companies in eight major industry categories over the two years represented in the release. The changes in sample size reflect that not all companies analyzed remained constant over the period of the study. However, the overall results are reliable indicators of overall plan changes as shown by the companies that were included in the sample at both the beginning and end of the time period studied. The retirement benefit data analyzed include DB plans, DC plans, retiree medical and retiree life insurance plans. The companies analyzed collectively have more than 9 million employees.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the web at towerswatson.com.

For Towers Watson
Ed Emerman, +1-609-275-5162
eemerman@eaglepr.com

Source: Towers Watson