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July 27, 2000
Hybrid Pensions and Defined Contribution Plans Gaining at Fortune 100

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Traditional defined benefit plans shrinking fast

BETHESDA, MD, - Nearly one-third of the Fortune 100 now offer employees so-called hybrid pension plans, an increase from 22 hybrids for the same group in 1998. However, the number of firms among the Fortune 100 without a defined benefit plan at all has increased even more sharply over the same two-year period, according to a new study by Watson Wyatt Worldwide.

Regulatory hassles behind move to defined contribution plans

"The recent shift to hybrid pensions, while clear, is less pronounced than many thought," says Eric Lofgren, director of the benefits consulting group at Watson Wyatt. "In contrast, the shift among some large firms to defined contribution is a surprise. This is no doubt in response to the increased regulatory complexity that governs pension plans. Some employers seem to have concluded that the administrative hassles of sponsoring a pension plan are so large that the only way they can win is by not offering a defined benefit plan at all."

Today, 32 percent of the companies in the Fortune 100 offer hybrid pension plans. That is up from just one company in 1985. At the same time, the number (and also %) of companies in the Fortune 100 offering defined contribution has risen from just ten companies during the 1980's through 1998, all the way to 16 today.

Distribution of Pension Plans among Fortune 100 Companies

Type of Plan Percentage of Companies

1985 1998 2000

Traditional Pension Plan* 89% 68% 52%

Hybrid Pension Plan* 1% 22% 32%

Defined Contribution/401(k) Only 10% 10% 16%

* Most of these firms also have a 401(k)

What is a hybrid pension plan?

Hybrid pension plans, such as cash balance plans and pension equity plans, are defined benefit plans where employees' benefits are expressed in terms of immediate lump sum payments, instead of as annuities after retirement.

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