DBs Have Higher Participation Cost

Defined contribution (DC) plans cost more than defined benefit (DB) plans per employee hour worked, but DB plans cost more than DC plans per participant.

The Bureau of Labor Statistics found private industry employer costs per employee hour worked for DC plans in March were 60 cents per employee hour worked, compared to 43 cents for DB plans. But if worker participation costs are derived –taking the Employer Costs for Employee Compensation for March 2012 cost divided by the participation rate for the benefit for that time period – data shows that DB plans have higher costs than DC plans.

The worker participation cost for DB is $2.53, while the worker participation cost for DC is $1.46.

Employer costs per employee worked for DB plans were highest for natural resource, construction and maintenance employees ($1.10), while worker participation costs for that sector were $4.78.

Employers with 500 or more workers have DB costs per employee (99 cents) that are approximately four times higher than the DB cost per employee for employers with 1 to 99 employees (23 cents), while employers with 500 or more workers had DB worker participation costs of $2.36 compared with $3.29 for employers with 1 to 99 employees.

The full report is available here.