Data & Research December 31, 2010

5500 Filings Track DB, DC Plan Trends

A review of the Form 5500 filings from 2008 confirms what even the most casual pension observer knows.
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In a report forwarded by www.benefitslink.com reviewing the highlights from the 2008 Form 5500 filings by the Employee Benefits Security Administration (EBSA), the agency notes that in 1978, when legislation was enacted authorizing 401(k) type plans that allow employees to contribute to their own retirement plan on a pre-tax basis, participants contributed 29% of the contributions to defined contribution (DC) plans and only 11% of total contributions to all defined benefit (DB) and DC pension plans.   

In the years following, EBSA notes that employee contributions to DC plans steadily rose to a peak of approximately 60% in 1999, where it has remained. 

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Other findings from Form 5500 series reports for 2008 plan years: 

  • The total amount of assets held by pension plans, which increased each year between 2002 and 2007, decreased $1.4 trillion (23%) in 2008. DB plan assets decreased by $0.6 trillion, while DC plan assets decreased by $0.8 trillion. 
  • Assets invested in 401(k) plans decreased 25.2% (to $2.2 trillion from a high of about $3 trillion in 2007). 
  • The total number of pension plans, which decreased each year over the 2001-2005 period, rose for the third straight year in 2008 to approximately 718,000 plans, a 1.4% increase over 2007. The number of DC plans rose by 1.6%, while the number of DB plans decreased by 1.2%. 
  • In 2008, the total active participant count decreased for the first time in three years, from 86.3 million to 86.2 million. The number of active participants in DB plans decreased for the ninth straight year, by 2.2%.  The number of active participants in DC plans increased to 67.2 million in 2008, up 0.6% from 2007. 
  • The number of 401(k) type plans continued to grow in 2008, with the number of plans increasing from 491,000 to 512,000.  The number of active participants in 401(k) type plans rose, albeit slightly from 59.6 million to 60.0 million. 
  • DC plan contributions increased by 4% (to $311.7 billion), while DB plan contributions increased by 57% (to $107.3 billion), the largest percentage increase since 2002.  Overall, contributions to pension plans increased by 13.8% in 2008, to $419.0 billion.  

Overall, pension plans disbursed $12.1 billion more than they received in contributions, 3% of contributions. DB plans disbursed $58.8 billion more than they collected in contributions, while DC plans disbursed $46.6 billion less than they received in contributions. 

The percentage of DB plans that report being fully frozen increased to 14.3% from 12.8% in 2007.  That said, in 2008, nearly a third (30.5%) of DB plans with 50-99 participants reported being frozen, the highest percentage by participant categories, compared with 26.2% in 2007.   

Though the share of DB plan assets in plans that were frozen doubled - from 4.7% in 2007 to 8.3% in 2008, IBM's decision to freeze its Personal Pension Plan (with 310,000 participants and $55 billion in assets) fully accounted for this increase, according to the report. 

The report is available online at http://www.dol.gov/ebsa/PDF/2008pensionplanbulletin.PDF 

Compliance December 31, 2010

Memorial Health Halts 401(k) Match

Savannah, Georgia-based Memorial Health will suspend its matching contributions to employees’ retirement accounts for at least a year, beginning February 1. 
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Calling the choice “a very difficult decision,” Phillip S. Schaengold, Memorial’s president/CEO, informed employees by letter dated Monday, according to the Savannah Morning News, and noted that the projected savings from the move will be about $4.4 million.  

About 4,500 system employees, who began receiving the letters Wednesday, were informed that the system, parent corporation of Memorial University Medical Center, will defer merit payments next year as part of the “hospital-wide expense reduction action steps,” the letter stated, according to the report.  The letter acknowledged that merit increases have been frozen for the past three years.  The merit freeze was chosen to “permit us to save a number of positions and avoid a reduction in critical programs,” the letter stated. 

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As for that 401(k) match, Schaengold’s letter said, “It is my hope that we will be able to restore both merit increases and the 401(k) employer matching contributions in 2012.”  

Schaengold cited an anticipated “little if no increase in reimbursements from third-party payers and relatively modest volume growth” at the same time as an expected “continuing demand to provide record amounts of uncompensated care.”  Memorial Health expects to lose about $12 million system-wide, with an anticipated $2 million profit for the hospital itself next year, according to the report.  

“The financial challenges facing Memorial are not unique to us and should not detract us from our commitment and responsibility to providing outstanding and safe care to all of our patients,” wrote Schaengold.   

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