The number of Fortune 500 companies offering just defined contribution (DC) plans, eliminating or freezing their DB plan, has doubled since 1998 with more companies transferring the risk by selling these plans to insurance companies. At the same time, DOL has initiated investigations at larger companies finding that many are improperly holding out on DB payments to retired workers.
Companies large and small have sought to relieve the liability of funding workers’ retirement under DB plans with 401 (interesting number) of the Fortune 500 companies offering just a DC plan up from 333 in in 2009 and double the number in 1998. The number of companies freezing their DB has also spiked to 39% in 2015 up from 21% in 2009.
And more of these companies are outsourcing the liability in their DB plans have known as pension de-risking by selling these plans to insurance companies. Through the 1990s and 2000s, pension de-risking averaged $1-$2 billion annually which increased to almost $35 billion in 2012. Low interest rates are stifling even more plan movement with many smaller and mid-sized companies jumping on the band wagon.
But most alarming is the fact that recent DOL investigations found a whopping $500 million in unpaid benefits to retired workers in DB plans in just six companies. The DOL found that either the companies had inadequate procedures to determine which employees were eligible and who should be paid or that they did were not following their own procedures which could end up as a fiduciary breach.
Smaller plans normally use third parties to help them with DB calculations and payments but regardless of who is at fault, ultimately, the plan sponsor is responsible. All of which should accelerate the move by companies to sell off their DB plans to insurance companies who have more robust systems and procedures to pay retired workers.
