Traditional defined benefit pension plans are on the verge of making a comeback, some pension consultants and retirement experts predict.
They base their predictions on expectations that aging baby boomers, Americans born in the two decades after World War II, will value defined benefit plans more as they head toward retirement. The oldest group of boomers is 52, and will hit retirement age around the end of the next decade.
And boomers are used to getting what they want, said Peter M. Kelly, a partner in the Chicago law firm of Murphy, Smith & Polk, who outlined his predictions at a recent American Bar Association conference in Toronto.
"This is not a generation above demanding two inconsistent things, 401(k) plans when they are younger and defined benefit plans when they are older," he said.
Some experts say many working Americans will discover they have not saved enough for retirement and may fear outliving their savings.
At the same time, if the stock market spins out of control, working Americans will begin clamoring for defined benefit plans, which pay pension checks every month throughout the retirement years.
In just the past few weeks, the market has slid around 700 points. While it is too soon to say how workers with money in 401(k) plans will react to a prolonged bear market, experts predict they will be poor market timers, possibly bailing out of investments as the market hits bottom.
In fact, the long bear market of the early 1970s prompted many employers to set up defined benefit pension plans because employees couldn't otherwise afford to retire, said Dan S. Brandenburg, partner in the Washington law firm of Sanders, Schnabel, Brandenburg & Zimmerman.
Defined benefit plans also will receive closer attention if the Social Security system is repackaged to let workers invest part of their payroll taxes in the stock market, said Lawrence J. Sher, principal at PwC Kwasha, the Fort Lee, N.J.-based employee benefits consulting firm.
Moreover, there are faint signs that the demise of defined benefit plans might have been premature.
Despite the overall drop in defined benefit pension plans, these old-fashioned plans have continued to grow among companies covering more than 5,000 participants, according to a paper presented by Mr. Kelly at the ABA conference.
Between 1980 and 1997 the number of large pension plans grew 57.4% from 714 to 1,124, while the number of participants in these plans increased 46.3% from 14.9 million to 21.8 million, according to PBGC data.
And companies in sectors of the economy that have traditionally maintained defined benefit plans -- such as manufacturing, transportation and public utilities -- have remained loyal to such plans. In 1997, 61.1% of participants in pension plans insured by the PBGC were in these industries, just a notch lower than the 64.8% a decade earlier.
Meanwhile, service sector companies, which have produced virtually all of the new jobs in the economy in the past 50 years and which did not adopt defined benefit plans for the most part, will probably find it makes sense to set up such plans as companies grow and become more established, Mr. Kelly said.
Among small businesses, where the decline in defined benefit plans has been most pronounced (plans insured by the PBGC with fewer than 100 participants fell 64.3% between 1980 and 1997 to 27,124 from 75,916), there is a slight resurgence, said Mr. Brandenburg, whose clientele is primarily small businesses.
He attributes that uptick to recent law changes that let entrepreneurs set aside more retirement money in such plans>