Median spending by S&P 500 companies on defined contribution plans exceeded the median spent on defined benefit plans for the first time in 2008, according to a Mercer study released today.
Mercers annual analysis of the retirement programs of S&P 500 companies showed that the median DC plan cost 0.39% of revenue in 2008, while its DB counterpart cost 0.38%. A news release about the study noted that spending on DC plans has been relatively flat between 2005 and 2008, while DB spending is down from 0.51% over the same time period.
Retirement programs including traditional defined benefit pension plans are an important, and integral, part of a companys financials as well as a key human resource strategy, but they operate in a changing landscape, Steve Alpert, a principal and consulting actuary with Mercer and primary author of the study, said in the release. For the first time, we are seeing that companies are spending more on their 401(k) and other DC plans than they are on providing their employees with pension benefits for the current year of service, reflecting years of DB plan freezes, closures or other cutbacks.
The study also showed that companies in the S&P 500 with DB plans ended 2008 with $1.45 trillion in pension liabilities and $1.14 trillion in assets, according to the release. Median DB plan assets dropped more than 25%, dragging down the median funded status of plans to 72%, from 94% at the end of 2007.