According to the US Bureau of Labor Statistics (BLS), defined-benefit pension plans took a nosedive in the 1980s and early 1990s.
According to BLS, in 1985, 41% of full-time workers in medium and large private companies participated in defined-contribution retirement plans while 80% were in defined-benefit plans. By 1993, 49% of full-time workers were part of defined-contribution plans compared to 56% in defined-benefit plans.
Between 1985 and 1993, the percent of full-time workers enrolled in plans with 401(k) provisions jumped from 26 to 43 percent.
In a study by Watson Wyatt and Segal, about 20% of respondents indicated that it is likely they will adopt some type of defined contribution program this year. Meanwhile, 71% of benefits managers will shift more costs to employees and 32% will look to more tightly managed care.
Insurers participating in the Segal survey reported a 40%/60% split on whether or not defined-contribution health plan designs will result in increased total cost for coverage.
The results of the Watson Wyatt and Segal study, however, are optimistic, according to FlexBen Corporation of Wisconsin president Kent Smith. The company assists employers in setting up accounts similar to those used for a defined-benefit plan.
"They are surveying very large employers," Smith said. "And even those employers said they would adopt some form of defined contribution. That could mean they tell their employees they will only pay 70% of a premium – or will only contribute a certain dollar amount toward coverage."
While Smith said defined-contribution plans – high-deductible policies with employer-funded medical spending accounts – will overtake defined benefit plans, legal hurdles need to be cleared first.
Chief among those hurdles is the passage of a version of H.R.3105 by the Senate. The measure would amend the Internal Revenue Code of 1986 to allow funds deposited in accounts for reimbursement of medical care under IRS code to be carried over from one year to the next. Some flexible spending accounts can already be carried over but, according to Smith, the type of account utilized in a defined-contribution plan is a separate issue.
Lacking this regulatory change, Smith said guidance on the matter was promised by the IRS by late this summer
May 10, 2002 Small Business Times, Milwaukee
