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May 04, 2006
Spike in Number of Employers Offering 401(k)s Exclusively
An analysis of the retirement plans of the country's largest employers reveals a significant increase in the percentage of employers who offer defined contribution/401(k) plans only, according to Watson Wyatt. In 2005, 36 percent of Fortune 100 companies offered 401(k) plans only (not in combination with a traditional pension plan), up from 25 percent in 2004 and from 17 percent in 2002.

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Conversely, the percentage of employers offering a traditional pension plan continued to decline in 2005--down from 42 percent in 2004 to 37 percent in 2005. As a point of comparison, in 1998, 68 percent of employers offered a traditional pension plan and just 10 percent offered a 401(k).

Meanwhile, hybrid plans--which Watson Wyatt explains are generally cash balance and pension equity plans--are on the decline, according to the findings. In 2004, 33 percent of employers offered hybrid plans, but just 27 percent did so in 2005.

In a press release announcing the findings, Watson Wyatt urged Congress to act on long-standing funding and regulatory issues affecting pensions:

"It's unfortunate that some employers are dropping their hybrid pension plans," said Sylvester J. Schieber, Watson Wyatt's director of U.S. benefits consulting. "Hybrids can be a win-win, offering employers a way to avoid the financial volatility of traditional defined benefit plans while ensuring that employers, not employees, retain the investment risk."

"Unless Congress takes some definitive action on pension reform legislation, employers may ultimately conclude that they have little choice other than to abandon these plans in favor of only a 401(k) plan, even if that is not the right decision for their company and workforce."

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