June 28, 2005
Today's more mobile workforce makes hybrid pensions plans critical to the retirement security of millions of Americans, according to a new study from the Employment Policy Foundation (EPF), a Washington, D.C.-based research group. Hybrid pensions currently help secure the future retirement of over 8.5 million workers. Over the past decade, more than one-quarter of employers with defined benefit pensions have converted these plans to a hybrid plan.
"Hybrids are critical to the future retirement security of today's workers.
Median tenure for workers approaching retirement has fallen more than 19 percent since 1983 to fewer than 8 years," said Janemarie Mulvey, EPF President and Chief Economist. "Unlike traditional defined benefit plans, these plans provide a portable benefit that allows workers to reinvest funds from their pension when changing jobs."
The majority of younger and middle-aged workers are not likely to stay with one employer their entire career, according to the study. Pension benefits under a hybrid plan are 17 percent higher than a traditional defined benefit plan for workers who work for three or more employers.
Furthermore, women-who average 11.5 years out of the workforce during their working lives-are also more likely to be enrolled in a hybrid plan suggesting they may voluntarily choose to work for firms who offer these plans over traditional defined benefit pensions.
In the past few years, hybrid plans have faced an increasing number of legal challenges with some employees arguing that they discriminate older workers. Thus far, the courts have been divided on the issue. Those cases have prompted the Administration and Congress to intervene with their own proposals to clarify the legality of these plans. Contrary to what some opponents have claimed, recent hybrid conversions have not lowered plan costs for sponsors significantly, casting doubt on claims that those conversions are cost-driven.
"Plan sponsors have converted to hybrid plans in an effort to meet the retirement planning needs of their aging and increasingly mobile workforce" said Mulvey. "While they do not significantly reduce pension expenses, plan sponsors do benefit from the reduced volatility of hybrid plans during economic downturns."
EPF's study examines two proposals that have been introduced in an attempt to clarify the legality of hybrid pension plans. The Bush proposal's creation of new benefit mandates and failure to address the legality of plans that have already converted would unduly raise costs to plan sponsors and would ultimately force many hybrid plan sponsors to abandon these plans in favor of defined contribution plans. Conversely, legislation recently introduced by Chairman Boehner (R-OH) of the House, Education and Workforce Committee would improve upon many of the shortcoming of the Bush proposal by not imposing mandates and applying to conversions that have already taken place. Chairman Boehner's plan is expected to be marked up in the full committee this week.
The full study is available online at:http://www.epf.org/pubs/newsletters/2005/ib20050628.pdf