Companies with defined benefit pension assets totaling more than $330 billion have adopted cash balance plans for all or many of their employees.
But trying to count cash balance plan conversions has become like skeet shooting: The target is constantly moving.
The new-fangled plan design was slow to catch on when it was introduced in the mid-1980s, but has since caught fire, particularly in the past five years.
Consultants and pension executives attribute the growth not to cost savings, but to the ease with which the cash balance concept can be explained and how quickly employees appreciate the value of their pension benefits.
From its first-ever survey of cash balance plans and other sources, Pensions & Investments found that at least 325 companies, with at least $334 billion in defined benefit assets, have switched to the plan design pioneered by BankAmerica and the employee benefits consulting firm then known as Kwasha Lipton.
Overall, as many as 800 to 900 companies -- led by the nation's biggest -- may have already switched to cash balance plan formulas, said Dennis Coleman, a principal at PwC Kwasha, Teaneck, N.J. And, more are making the change every year, he said.
Mr. Coleman put his very rough estimate of the assets now managed in cash balance plans at between 10% and 20% of total defined benefit plan assets, or between $300 billion and $600 billion.
In addition, companies including AT&T Corp., which originally put only salaried workers into cash balance plans, have since added union employees through successful collective bargaining.
IBM Corp., on the other hand, recently put all employees into a cash balance plan except those eligible for retirement in five years, who may choose to stay in the old plan. New employees automatically go into the cash balance plan.
The trend away from defined benefit plans based on final average pay formulas will continue, Mr. Coleman said.
Dead and dying
"Just look at the defined benefit plan landscape -- it's the dead and the dying. Cash balance and hybrid pension equity plans are the only place where there's any action. They've been around for 13 or 14 years and have just exploded in the last five years. You will never see the pendulum swing back and see that companies are going back to that final average pay scheme," he said.
The biggest driver behind cash balance plan conversion is the ease of communications, said Joseph A. Rosalie, a principal at Deloitte & Touche LP, New York. The least important consideration is cost savings, he added.
"Sponsors aren't getting a bang out of their defined benefit plans. No one understands the plan, they don't appreciate it," Mr. Rosalie said. "A cash balance plan is simple to explain. And when a plan sponsor sees that a cash balance plan will lower costs for younger workers, they're thrilled. And then comes step three. By the time they've redesigned a cash balance plan that preserves the same benefit for older workers and the grandfathering starts for people in their 40s, 50s and 60s, companies have often given back the cost savings they gained with a cheaper formula for younger workers."
Observers note while early plan conversions in the 1980s tended to be concentrated in certain industries -- financial, telecommunications and utility -- today, the appeal is cross-industry.
"The move to a cash balance plan . . . has become a competitive recruitment tool and a necessity for some industries, especially technology companies, where the employee work force looks a lot different," said James M. Delaplane, vice president, retirement policy, at the Association of Private Pension and Welfare Plans, Washington.
"In some industries, there are people who don't plan to be with the company for a long time. They are needed by a company for some limited phase and cash balance plans, with their increased portability, are designed to cater to this segment of the work force."
Among the 127 companies that responded to a P&I survey, only 38 had cash balance plans. Four are converting to cash balance plans this year; another 22 companies are considering a move to cash balance.
Thirty-five pension executives said their companies had never considered cash balance plans; 28 have evaluated cash plan conversions, often at the suggestion of their consultants, and decided against a change.
Ericsson Inc., Richardson, Texas, with $450 million in defined benefit and 401(k) plan assets, was among the those deciding not to make a change.
Ericsson pension executives considered the idea at the suggestion of the company's consultant because there was so much media hype, said Michael Gillert, treasurer.
But a conversion would have created a complex situation in grandfathering older employees, whose benefits had to remain equivalent to what they would receive under the existing defined benefit plan. And pension executives were worried the portability of cash balance plans would send the wrong message to employees.
"Cash balance plans are a calling card to new employees, who might want the portability feature, but we thought it was a disincentive to the kind of employee we want to attract and retain, one who is going to be with us for a long time," Mr. Gillert said.
Brunswick Corp., by contrast, rejected a cash balance plan because of cost, said Michael Dolsen, director of retirement plans at the Lake Forest, Ill., company.
Cost savings from collapsing the defined benefit plan into a cash balance plan would be quickly swallowed up when Brunswick tried to replicate the defined benefit plan's generous formula and early retirement incentives for workers between 50 and 65, he said.
"The true cost of the (cash balance) program is prohibitive," he said. "If people don't appreciate the defined benefit plan, it's our fault and we need to communicate it better." Brunswick instead will move July 1 to a 401(k) plan for new employees, those under the age of 40 and those not vested in the defined benefit plan. Older workers will stay in the defined benefit plan, which will be frozen and gradually drawn down.