Only about half of Fortune 100 companies still offer their employees defined benefit pension plans. An analysis by consulting firm Watson Wyatt found that 54 firms had a defined benefit pension plan for newly hired salaried workers last year. Of those 54 firms, 28 offered a traditional pension that guarantees income for life. The remaining 26 offered hybrid pension plans like cash balance plans, an account that the employer deposits a set amount of money into (such as 5 percent of pay) and also deposits interest (which can be a fixed rate or a variable rate linked to an index such as a one-year treasury bill). But increases or decreases in the market don't directly affect the account, because the employer bears all the investment risks and rewards.
When it comes time to retire, the employee can choose to receive annuity payments until the account balance is used up or take a lump sum equal to the account balance. Sometimes vested employees can also cash out the lump sum when they leave an employer.
Here's how retirement plans at Fortune 100 companies have stacked up over the years.
|Traditional defined benefit plan
|Hybrid defined benefit plan
(cash balance plan)
|Defined contribution plan
Source: Watson Wyatt, 2008