401(k) Plans Still Popular, But Growth is Slowing

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For the past few years, retirement has seemed like a pipe dream for many Americans. The financial meltdown that occurred six years ago decimated the retirement accounts of many Americans, and U.S. employment numbers are still limping back to pre-recession levels. Add to that the wage stagnation the U.S. has seen over the past decades and it is easy to see how retirement is out of reach for many Americans.

With this in mind, a new report on the popularity of different retirement plans begins to make sense. The report, released by professional services firm Towers Watson, shows that defined contribution (DC) retirement plans such as 401(k) plans are still the most popular option for employers, though their growth slowed significantly last year.

The firm's research shows that in 2013 fewer U.S. companies cut traditional defined benefit (DB) retirement plans from their new hire offerings last year than in any year since 2003. Only five Fortune 500 companies fully cut their DB offerings during 2013.

The insurance and utilities industries in particular have resisted the shift away from DB retirement plans. The report claims that over half of companies in those sectors are still offering DB plans to employees. Towers Watson points out that, ironically, insurance industry employees may have a better understanding of why DB plans can be more beneficial for them.

Though these trends could be taken as a good sign for workers wishing to keep their livelihoods out of the market, DC plans are still steadily rising in popularity. The Towers Watson report shows that only 118 Fortune 500 companies now offer any type of DB plan - a record low down from 299 just 15 years ago. The number of Fortune 500 companies offering only DC plans to their new hires hit an all-time high of 382 in 2013.

“It’s noteworthy that DB plans still serve certain industries and companies well, especially those with particular talent and retention needs," said Kevin Wagner, senior retirement consultant at Towers Watson. "At the same time, the broader shift from DB to DC is helping fuel growing concern over employees’ ability to retire comfortably. As a result, employers will need to carefully consider their overall retirement plan strategies to make sure whatever plans they offer new employees will help them with their retirement readiness efforts and align with their expectations.”