	From January 1997 to the Time of the Survey Response, Large Sponsors of DB Plans Have Revised Their Benefit Offerings in Various Ways

Our survey of the largest sponsors of DB pension plans reveals that they  have made a number of revisions to their benefit offerings over  approximately the last 10 years or so. Generally, respondents reported that  they revised benefit formulas, converted some plans to hybrid plans (such  as cash balance plans), or froze some of their plans. For example, 81  percent of responding sponsors reported that they modified the formulas  of one or more of their DB plans. Regarding plan freezes, 62 percent of the responding firms reported a  freeze, or a plan amendment to limit some or all future pension accruals  for some or all plan participants, for one or more of their plans (see app. The vast majority of respondents (90 percent) to our most recent survey  also reported on their 401(k)-type DC plans. The vast majority reported either an  increase or no change to the employer or employee contribution rates,  with generally as many reporting increases to contributions as reporting  no change (see app. Many (67 percent) of responding firms plan to implement or have already  implemented an automatic enrollment feature to one or more of their DC  plans. We asked respondents to report on how an employer’s share of providing  retiree health benefits had changed over the last 10 years or so for current  retirees. At the Time of the Survey, Large DB Sponsors Anticipated Making Few Additional Changes to DB Plans

Responding before October 2008—before the increasingly severe  downturns in the national economy—most survey respondents reported  they had no plan to revise benefit formulas or freeze or terminate plans, or  had any intention to convert to hybrid plans before 2012. When asked about how much they had been or were likely to be  influenced by recent legislation or account rule changes, such as PPA or  the adoption of Financial Accounting Standards Board (FASB)  requirements to fully recognize obligations for postretirement plans in  financial statements, responding firms generally indicated these were not  significant factors in their decisions on benefit offerings. Their relative stability has been important, as  these plans represent retirement income for more than three-quarters of  all participants in single-employer plans. Today, these large plans no  longer appear immune to the broader trends that are eroding retirement  security. This trend is most pronounced among  nonbargained plans but is also apparent among bargained plans. 2) What changes might employers make with respect to their  pensions in the future, and how might these changes be  influenced by changes in pension law and other factors? Large DB Plan Sponsor Survey: Health Benefits for Active Employees and Retirees

				Health care was the single largest benefit as a percentage of base pay

(Figure 10)
All responding DB plan sponsors offered health insurance to active  employees and contributed to the cost  All responding DB plan sponsors offered health insurance to at least  some current retirees—nearly all to both pre-age 65 and age 65-plus  employees   80 percent provided health insurance to at least some active  employees who become eligible for the benefit upon retirement  20 percent provided health insurance that was fully paid by the  retired employee (Figure 11)

		Large DB Plan Sponsor Survey: Health Benefits for Current Retirees

Compared to respondents reporting on their benefits  covering CB employees, respondents with NB employees  reported decrease in the employer’s share of the cost of  providing health benefits to current retirees (Figure 12)
Main reasons were increases in cost of health insurance  for retirees and for active employees (Figure 13)

		Large DB Plan Sponsor Survey: Health Benefits for Future Retirees

46 percent of plan sponsors no longer offered retiree health benefits to  active employees hired after a certain date. 54 percent decreased or eliminated the firm's share cost of providing  health benefits for future retirees who were non-bargaining employees;   (Figure 14)
Primary reasons cited were large cost increases in health insurance  for both retirees and active employees (Figure 15) 41 percent of sponsors with bargaining unit employees reported decrease  in or elimination of firm's share of health care costs for future retirees  (Figure 14)  26 percent reported no change  Primary reason cited was match/maintain parity with competitor’s benefits package (Figure 16)

		Retiree Health Care Represents a Significant Liability for DB Plan Sponsors

			Large DB Plan Sponsor Survey: Conditions to Consider Forming New DB Plans

				Most sponsors reported no possible conditions that could make

them definitely consider forming a new DB plan  26 percent of sponsors reported that there were conditions under which they would have considered offering a new DB plan; the  most common conditions selected were:  Provide sponsors with greater scope in accounting for DB  plans on corporate balance sheets  DB plans became more effective as an employee retention   Reduced unpredictability or volatility in DB plan funding  requirements (Figure 17)

		Implications/Concluding Observations

			Stability of large sponsor plans now increasingly vulnerable to

Appendix II: Scope and Methodology

To achieve our objectives, we conducted a survey of sponsors of large  defined-benefit (DB) pension plans.
Why GAO Did This Study

The number of private defined benefit (DB) pension plans, an important source of retirement income for millions of Americans, has declined substantially over the past two decades. For example, about 92,000 single-employer DB plans existed in 1990, compared to just under 29,000 single-employer plans today. Although this decline has been concentrated among smaller plans, there is a widespread concern that large DB plans covering many participants have modified, reduced, or otherwise frozen plan benefits in recent years. GAO was asked to examine (1) what changes employers have made to their pension and benefit offerings, including to their defined contribution (DC) plans and health offerings over the last 10 years or so, and (2) what changes employers might make with respect to their pensions in the future, and how these changes might be influenced by changes in pension law and other factors. To gather information about overall changes in pension and health benefit offerings, GAO asked 94 of the nation's largest DB plan sponsors to participate in a survey; 44 of these sponsors responded. These respondents represent about one-quarter of the total liabilities in the nation's single-employer insured DB plan system as of 2004. The survey was largely completed prior to the current financial market difficulties of late 2008.

What GAO Found

GAO's survey of the largest sponsors of DB pension plans revealed that respondents have made a number of revisions to their retirement benefit offerings over the last 10 years or so. Generally speaking, they have changed benefit formulas; converted to hybrid plans (such plans are legally DB plans, but they contain certain features that resemble DC plans); or frozen some of their plans. Eighty-one percent of responding sponsors reported that they modified the formula for computing benefits for one or more of their DB plans. Among all plans reported by respondents, 28 percent of these (or 47 of 169) plans were under a plan freeze--an amendment to the plan to limit some or all future pension accruals for some or all plan participants. The vast majority of respondents (90 percent, or 38 of 42 respondents) reported on their 401(k)-type DC plans. Regarding these DC plans, a majority of respondents reported either an increase or no change to the employer or employee contribution rates, with roughly equal responses to both categories. About 67 percent of (or 28 of 42) responding firms plan to implement or have already implemented an automatic enrollment feature to one or more of their DC plans. With respect to health care offerings, all of the (42) responding firms offered health care to their current workers. Eighty percent (or 33 of 41 respondents) offered a retiree health care plan to at least some current workers, although 20 percent of (or 8 of 41) respondents reported that retiree health benefits were to be fully paid by retirees. Further, 46 percent of (or 19 of 41) responding firms reported that it is no longer offered to employees hired after a certain date. At the time of the survey, most sponsors reported no plans to revise plan formulas, freeze or terminate plans, or convert to hybrid plans before 2012. When asked about the influence of recent legislation or changes to the rules for pension accounting and reporting, responding firms generally indicated these were not significant factors in their benefit decisions. Finally, a minority of sponsors said they would consider forming a new DB plan. Those sponsors that would consider forming a new plan might do so if there were reduced unpredictability or volatility in DB plan funding requirements and greater scope in accounting for DB plans on corporate balance sheets. The survey results suggest that the long-time stability of larger DB plans is now vulnerable to the broader trends of eroding retirement security. The current market turmoil appears likely to exacerbate this trend.