When the chief executive asks: “Why does this company sponsor a DB plan?” the answer for some companies may be: “It cost-effectively provides additional rewards to some of our most valuable employees, and it enables those employees to retire in an orderly manner. The additional administrative costs and financial risks of sponsorship are more than offset by the resulting value to the organization of these workforce management advantages.” This Perspectives paper outlines how various employees would fare based on participation in a DB plus DC versus a DC-only plan. It also provides information to address whether the workforce planning advantages of DB plans justify the cost and risk of plan sponsorship.
Some of the key insights are:
- The most common short-term issue that organizations face is too many employees.
- A typical employer’s staffing needs decline during recessionary times and increase during boom times.
- Thus, the potential delay in retirement for the DC-only employees occurs at the worst time for the employer — when fewer employees are needed — and the acceleration in retirement that may occur in boom times occurs when finding replacement employees is the most difficult.