The news around corporate defined benefit plans over the past couple decades has been bleak, with companies expeditiously freezing or terminating plans. But with some help out of Washington, experts say there's an opportunity for employers to reopen plans still on their books or provide their workers with guaranteed income in retirement.
"For a sponsor that has a frozen plan that has participants concerned about guaranteed income, you don't necessarily need some new solution in the DC plan, you've got a guaranteed income thing over there," said Jon Barry, managing director at MFS Investment Management. "So maybe it's worth thinking about reopening that because that could be one piece to the puzzle in helping participants with their retirement income challenge."
Standing in the way of widespread adoption are outdated funding rules and rising Pension Benefit Guaranty Corp. premiums, sources said.
"If those issues get addressed, companies can be a lot more focused on the substance of what really helps participants save for retirement," said Dennis Simmons, executive director for the Committee on Investment of Employee Benefit Assets, whose 115 members are asset owners with more than $2.5 trillion of defined benefit and defined contribution assets. "I do think that companies are looking at the possibility of reopening plans. They've restructured, they've generally gotten to fully funded status and they can refocus on strengthening pension arrangements."
On that front, International Business Machines Corp., Armonk, N.Y., recently announced that beginning on Jan. 1 it is introducing a company-provided benefit for U.S. employees called the Retirement Benefit Account within the existing IBM Personal Pension Plan.
The RBA will replace current company contributions to the IBM 401(k) Plan, but employees can continue to contribute to their 401(k) plan, an IBM spokesperson said in an emailed statement.
Currently, IBM offers employees a 5% 401(k) match, according to the company's 2022 annual report.
"IBM is continually making improvements to how we support employee financial well-being," the company statement said. "By introducing this retirement benefit within the IBM's Personal Pension Plan, which is stable and well-funded, IBM is able to provide a benefit to employees that also helps diversify their retirement portfolios."
The IBM Personal Pension Plan was closed in 2005 and frozen in 2008. In 2022, IBM purchased group annuity contracts from Prudential Insurance Co. of America and Metropolitan Life Insurance Co. to transfer a total of $16 billion in U.S. defined benefit plan liabilities. The plan had $23.6 billion in assets as of Sept. 30, according to Pensions & Investments data.
IBM declined to comment further.
John J. McKevitt, a consulting actuary at Cheiron, said IBM's move shows that "employers want to consider opportunities to diversify their retirement offerings. I think it may also speak to employers considering new and in some old ways of encouraging employee retention."
Offering employees a lifetime income vehicle while allowing them to contribute to a 401(k) plan makes sense in today's environment, said Michael P. Kreps, a principal at Groom Law Group. "This idea of moving people back into a system where they have a DB benefit, a DC benefit and Social Security and using the employer match to fund the DB benefit, that's not a new idea but it's a really good idea," he added.