While defined benefit retirement plans have been steadily eroding in the private sector for years, large employers remain the most likely to offer such plans, according to a study by the TowersWatson consulting firm.
The federal government most commonly is compared with large employers, not smaller ones, for benefits purposes and the persistence of defined benefit plans among such employers could work to lessen pressures on the CSRS and FERS defined benefit plans within the government.
However, even among those companies, the availability of such plans is hardly universal. In a survey of 400 companies, 45 percent of those in the top 10 in terms of size offer defined benefit retirement plans. It added that since 2000, about three-fourths of companies that had traditional defined benefit plans structured similarly to civil service annuities—with benefits guaranteed for life based on salary and years of service—have made those plans less generous since, with the most common action being to close the program to new hirees. And of those that still have such plans, a quarter are “not firmly committed” to keeping them.
Companies that have replaced such plans increasingly have turned to defined contribution plans such as 401(k)s that are comparable to the federal Thrift Savings Plan. Almost all of them offer some type of employer contribution. However, the study said, “there is no question that the funds employers are allocating to DC plans will not be sufficient to produce the same retirement benefit levels as their old DB plans.”
It said the average employer contribution available under defined contribution plans is 4.04 percent, which is reached by an average employee investment of 5.37 percent. In the TSP, the maximum available employer contribution for FERS employees is 5 percent, reached with a personal investment of 5 percent. There are no employer contributions to the TSP for CSRS employees.
