Defined Benefit Pensions: Survey Results of the Nation's Largest Private Defined Benefit Plan Sponsors
Published: 2009-03-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: 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. At the same time, the number of defined-  contribution (DC) pension plans, such as 401(k)-type plans, has grown  dramatically and resulted in a shift from DB plans to DC plans. For  example, as of 2006, the Department of Labor estimates that there are 2.3  participants in a single-employer DC plan for each participant in a single- employer DB plan. One consequence of this shift from DB to DC plans is a  shift of risk and responsibility to individual employees and away from the  plan sponsors. In contrast to this overall trend, more large DB plans, or  plans with more than 5,000 participants, exist today than did in 1990.  Despite the relative resilience of these large plans, there is widespread  concern that sponsors of these plans have frozen or otherwise modified  plan benefits. Additionally, over the last few years, these plan sponsors  have had to deal with a very dynamic environment for pensions— especially with respect to pension legislation, changes to pension-related  accounting rules, and a now rapidly worsening financial environment.
Employers have also been wrestling with higher health care costs and  making a number of changes to health benefit offerings. For example,  many employers that offer health benefits have required workers to pay a  higher share of out-of-pocket costs, and some have recently introduced  consumer-directed health plans, which trade lower premiums for  significantly higher deductibles. Similar to coverage for active workers, an  increasing share of retiree health benefits costs is being shifted to retirees  and many employers have terminated benefits for future retirees—a trend  that experts believe will continue.
Plan sponsors have also had to react to changes in the legislation  governing plan funding and sponsorship and in accounting rules  determining how pension assets and liabilities should be publicly reported.  The current financial market turmoil has also led to additional stress on  many plan sponsors. For example, a benefit consulting group recently  estimated that the recent stock downturn has left DB pension plans at the  nation’s largest companies underfunded by $409 billion—erasing an  estimated $60 billion pension surplus at year-end 2007. On average, these  large firms’ pension assets were only able to cover 75 percent of their  obligations, down from the estimated 104 percent a year prior.
To better understand what has happened in the last decade or so, and  what may happen in the future to pension plans as indicated by the actions  of large DB sponsors, you asked us to address   (1) what changes employers have made to their pension and benefit  offerings, including to their 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 determine the status of sponsors’ current benefit offerings, as well as  possible prospective changes to pension offerings in the context of the  current legal and regulatory environment, we developed, pretested, and  administered an original survey of large DB plan sponsors. Additionally we  analyzed and reviewed other employer studies and reviewed related  literature. Appendix I contains revised slides that update the preliminary  briefing information that we provided to your staff, as well as to officials  from the Pension Benefit Guaranty Corporation (PBGC), the Department  of Labor, and the Department of the Treasury in February 2009.
To achieve our survey objectives, we developed and pretested a  questionnaire that we sent to the largest DB pension sponsors from  PBGC’s 2004 Form 5500 Research Database. We further limited our study  population to those sponsors that were also listed on either the Fortune  500 or Global 500 lists. We administered the survey to the 94 largest  sponsors (by total participants in all sponsored plans) for which we were  able to obtain information for the firm representative who would be most  knowledgeable on pension and benefits issues. While 94 firms we  identified for the survey do not represent a statistically generalizable  sample of the roughly 23,500 total DB plan sponsors we identified in the  Form 5500 Research Database, we estimate that these 94 sponsors  represented 50 percent of the total liabilities and 39 percent of the total  participants (active, retired, and separated-vested) in the PBGC insured  single-employer DB system as of 2004. Given their relative significance, the  94 sponsors, by themselves, represent an important share of the DB  system. Among the 44 plan sponsors that ultimately responded to the  survey, we estimate that these sponsors represent 25 percent of the total  liabilities and 19 percent in the single-employer DB system as of 2004 (see  app. I, slide 5). Further, the responding sponsors represented a diversity of  industries such as manufacturing; information; finance or insurance; and  other various industries (see app. I, slide 7). Additionally, responding firms  reported employing, on average, 75,000 employees in their U.S. operations  in 2006.
The survey was administered as a Web-based survey that was available for  access from December 17, 2007, to October 31, 2008. The vast majority of  respondents completed the survey at least a few months prior to the  recent financial downturn. Our analysis is unlikely to capture any related  trends.
We initiated our audit work in April 2006. We issued results from our  survey regarding frozen plans in July 2008. We completed our audit work  for this report in March 2009 in accordance with all sections of GAO’s  Quality Assurance Framework that are relevant to our objectives. The  framework requires that we plan and perform the engagement to obtain  sufficient and appropriate evidence to meet our stated objectives and to  discuss any limitations in our work. We believe that the information and  data obtained, and the analysis conducted, provide a reasonable basis for  any findings and conclusions.
See appendix II for a more detailed discussion about our methodology.
subsections: section_title: From January 1997 to the Time of the Survey Response, Large Sponsors of DB Plans Have Revised Their Benefit Offerings in Various Ways
paragraphs: 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.
Respondents were asked to report changes for plans or benefits that  covered only nonbargaining employees, as well as to report on plans or  benefits that covered bargaining unit employees. Fifty-eight percent of  respondents who reported on plans for collective- bargaining employees  indicated they had generally increased the generosity of their DB plan  formulas between January 1997 and the time of their response (see app. I,  slide 12). In contrast, 48 percent of respondents reporting on plans for  their nonbargaining employees had generally decreased the generosity of  their DB plan formulas since 1997. “Unpredictability or volatility of DB  plan funding requirements” was the key reason cited for having changed  the benefit formulas of plans covering nonbargaining employees (see app.  I, slide 14). “Global or domestic competitive pressures” in their industry  was the key reason cited for the changes to the plans covering collectively  bargained employees (see app. I, slide 13). With regard to plans for  bargaining employees, however, a number of the sponsors who offered  reasons for changes to bargaining unit plans also volunteered an  additional reason for having modified their plans covering bargaining  employees. Specifically, these sponsors wrote that inflation or a cost-of- living adjustment was a key reason for their increase to the formula. This  suggests that such plans were flat-benefit plans that may have a benefit  structure that was increased annually as part of a bargaining agreement.
Meanwhile, sponsors were far more likely to report that they had  converted a DB plan covering nonbargaining unit employees to a hybrid  plan design than to have converted DB plans covering collectively  bargained employees. For example, 52 percent of respondents who  reported on plans for nonbargaining unit employees had converted one or  more of their traditional plans to a cash balance or other hybrid  arrangement (see app. I, slide 15). Many cited “trends in employee  demographics” as the top reason for doing so (see app. I, slide 16). Among  respondents who answered the cash balance conversion question for their  collectively bargained plans, 21 percent reported converting one or more  of their traditional plans to a cash balance plan.
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. I,  slide 18). Looking at the respondent’s plans in total, 8 percent of the plans  were described as hard frozen, meaning that all current employees who  participate in the plan receive no additional benefit accruals after the  effective date of the freeze, and that employees hired after the freeze are  ineligible to participate in the plan. Twenty percent of respondents’ plans  were described as being under a soft freeze, partial freeze, or “other”  freeze. Although not statistically generalizable, the prevalence of freezes  among the large sponsor plans in this survey is generally consistent with  the prevalence of plan freezes found among large sponsors through a  previous GAO survey that was statistically representative.
The vast majority of respondents (90 percent) to our most recent survey  also reported on their 401(k)-type DC plans. At the time of this survey,  very few respondents reported having reduced employer or employee  contribution rates for these 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. I, slide 21). The differences reported in contributions  by bargaining status of the covered employees were not pronounced.  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.
According to an analysis by the Congressional Research Service, many DC  plans require that workers voluntarily enroll and elect contribution levels,  but a growing number of DC plans automatically enroll workers.  Additionally, certain DC plans with an automatic enrollment feature may  gradually escalate the amount of the workers’ contributions on a recurring  basis. However, the Pension Protection Act of 2006 (PPA) provided  incentives to initiate automatic enrollment for those plan sponsors that  may not have already adopted an automatic enrollment feature. Seventy- two percent of respondents reported that they were using or planning to  use automatic enrollment for their 401(k) plans covering nonbargaining  employees, while 46 percent indicated that they were currently doing so  or planning to do so for their plans covering collective-bargaining  employees (see app. I, slide 22). The difference in automatic enrollment  adoption by bargaining status may be due to the fact that nonbargaining  employees may have greater dependence on DC benefits. That is, a few  sponsors noted they currently automatically enroll employees who may no  longer receive a DB plan. Alternatively, automatic enrollment policies for  plans covering collective-bargaining employees may not yet have been  adopted, as that plan feature may be subject to later bargaining.
Health benefits are a large component of employer offered benefits. As  changes to the employee benefits package may not be limited to pensions,  we examined the provision of health benefits to active workers, as well as  to current and future retirees. We asked firms to report selected nonwage  compensation costs or postemployment benefit expenses for the year 2006  as a percentage of base pay. Averaging these costs among all those  respondents reporting such costs, we found that health care comprised the  single largest benefit cost. Active employee health plans and retiree health  plans combined to represent 15 percent of base pay (see app. I, slide 24).  DB and DC pension costs were also significant, representing about 14  percent of base pay. All of the respondents reporting on health benefits  offered a health care plan to active employees and contributed to at least a  portion of the cost. Additionally, all of these respondents provided health  benefits to some current retirees, and nearly all were providing health  benefits to retirees under the age of 65 and to retirees aged 65 and older.  Eighty percent of respondents offered retiree health benefits to at least  some future retirees (current employees who could eventually become  eligible for retiree benefits), although 20 percent of respondents offered  retiree health benefits that were fully paid by the retiree. Further, it  appears that, for new employees among the firms in our survey, a retiree  health benefit may be an increasingly unlikely offering in the future, as 46  percent of responding firms reported that retiree health care was no  longer to be offered to employees hired after a certain date (see app. I,  slide 25).
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. Results among respondents generally did not vary by the  bargaining status of the covered employees (app. I, slide 27). However, 27  percent of respondents reporting on their retiree health benefits for plans  covering nonbargaining retirees reported increasing an employer’s share  of costs, while only 13 percent of respondents reporting on their retiree  health benefits for retirees from collective-bargaining units indicated such  an increase. Among those respondents with health benefits covering  nonbargained retirees, they listed “large increases in the cost of health  insurance coverage for retirees” as a major reason for increasing an  employer’s share—not surprisingly. This top reason was the same for all of  these respondents, as well as just those respondents reporting a decrease  in the cost of an employer’s share. Additionally, a number of respondents  who mentioned “other” reasons for the decrease in costs for employers  cited the implementation of predefined cost caps.
Our survey also asked respondents to report on their changes to retiree  health offerings for future retirees or current workers who may eventually  qualify for postretirement health benefits. As noted earlier, 46 percent of  respondents reported they currently offered no retiree health benefits to  active employees (i.e., current workers) hired after a certain date.  Reporting on changes for the last decade, 54 percent of respondents  describing their health plans for nonbargaining future retirees indicated  that they had decreased or eliminated the firm’s share of the cost of  providing health benefits (see app. I, slide 30). A smaller percentage (41  percent) of respondents reporting on their health benefits for collectively  bargained future retirees indicated a decrease or elimination of benefits.  The need to “match or maintain parity with competitor’s benefits package”  was the key reason for making the retiree health benefit change for future  retirees among respondents reporting on their collective-bargaining  employees (app. I, slide 32).
We asked respondents to report their total, future liability (i.e., present  value in dollars) for retiree health as of 2004. As of the end of the 2004  plan year, 29 respondents reported a total retiree health liability of $68  billion. The retiree health liability reported by our survey respondents  represents 40 percent of the $174 billion in DB liabilities that we estimate  for these respondents’ DB plans as of 2004. According to our estimates, the  DB liabilities for respondents reporting a retiree health liability were  supported with $180 billion in assets as of 2004. We did not ask  respondents about the assets underlying the reported $68 billion in retiree  health liabilities. Nevertheless, these liabilities are unlikely to have much  in the way of prefunding or supporting assets, due in large part to certain  tax consequences. Although we did not ask sponsors about the relative  sustainability of retiree health plans given the possible difference in the  funding of these plans relative to DB plans, we did ask respondents to  report the importance of offering a retiree health plan for purposes of firm  recruitment and retention. Specifically, we asked about the importance of  making a retiree health plan available relative to making a DB or DC  pension plan available. Only a few respondents reported that offering DB  or DC plans was less (or much less) important than offering a retiree  health plan.
section_title: At the Time of the Survey, Large DB Sponsors Anticipated Making Few Additional Changes to DB Plans
paragraphs: 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. Survey  respondents were asked to consider how their firms might change specific  employee benefit actions between 2007 and 2012 for all employees. The  specific benefit actions they were asked about were a change in the  formula for calculating the rates of benefit accrual provided by their DB  plan, a freeze of at least one DB plan, the conversion of traditional DB  plans to cash balance or other hybrid designs, and the termination of at  least one DB plan. For each possibility, between 60 percent and 80  percent of respondents said their firm was not planning to make the  prospective change (see app I, slide 34).
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. Despite these  legislative and regulatory changes to the pension environment, most  survey respondents indicated that it was unlikely or very unlikely that  their firms would use assets from DB plans to fund qualified health plans;  increase their employer match for DC plans; terminate at least one DB  plan; amend at least one DB plan to change (either increase or decrease)  rates of future benefit accruals; convert a DB plan to a cash balance or  hybrid design plan, or replace a DB plan with a 401(k)-style DC plan.
Additionally, most respondents indicated “no role” when asked whether  PPA, FASB, or pension law and regulation prior to PPA had been a factor  in their decision (see app 1, slide 35). Though the majority of these  responses indicated a trend of limited action related to PPA and FASB, it  is interesting to note that, among the minority of firms that reported they  were likely to freeze at least one DB plan for new participants only, most  indicated that PPA played a role in this decision. Similarly, while only a  few firms indicated that it was likely they would replace a DB plan with a  401(k)-style DC plan, most of these firms also indicated that both PPA and  FASB played a role in that decision.
There were two prospective changes that a significant number of  respondents believed would be likely or very likely implemented in the  future. Fifty percent of respondents indicated that adding or expanding  automatic enrollment features to 401(k)-type DC plans was likely or very  likely, and 43 percent indicated that PPA played a major role in this  decision. This is not surprising, as PPA includes provisions aimed at  encouraging automatic enrollment and was expected to increase the use  of this feature. Forty-five percent of respondents indicated that changing  the investment policy for at least one DB plan to increase the portion of  the plan’s portfolio invested in fixed income assets was likely or very  likely—with 21 percent indicating that PPA and 29 percent indicating  that FASB played a major or moderate role in this decision (see app 1,  slide 36). Our survey did not ask about the timing of this portfolio change,  so we cannot determine the extent of any reallocation that may have  occurred prior to the decline in the financial markets in the last quarter of  2008.
Finally, responding sponsors did not appear to be optimistic about the  future of the DB system, as the majority stated there were no conditions  under which they would consider forming a new DB plan. For the 26  percent of respondents that said they would consider forming a new DB  plan, some indicated they could be induced by such changes as a greater  scope in accounting for DB plans on corporate balance sheets and reduced  unpredictability or volatility of plan funding requirements (see app I, slides  38). Conditions less likely to cause respondents to consider a new DB plan  included increased regulatory requirements of DC plans and reduced  PBGC premiums (see app I, slide 39).
section_title: Conclusions
paragraphs: Until recently, DB pension plans administered by large sponsors appeared  to have largely avoided the general decline evident elsewhere in the  system since the 1980s. 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. While few plans have been terminated, survey results suggest that  modifications in benefit formulas and plan freezes are now common  among these large sponsors. This trend is most pronounced among  nonbargained plans but is also apparent among bargained plans. Yet, this  survey was conducted before the current economic downturn, with its  accompanying market turmoil. The fall in asset values and the ensuing  challenge to fund these plans places even greater stress on them today.
Meanwhile, the survey findings, while predating the latest economic news,  add to the mounting evidence of increasing weaknesses throughout the  existing private pension system that include low contribution rates for DC  plans, high account fees that eat into returns, and market losses that  significantly erode the account balances of those workers near retirement.  Moreover, the entire pension system still only covers about 50 percent of  the workforce, and coverage rates are very modest for low-wage workers.  Given these serious weaknesses in the current tax-qualified system, it may  be time for policymakers to consider alternative models for retirement  security.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Department of Labor, the  Department of the Treasury, and PBGC. The Department of the Treasury  and PBGC provided technical comments, which we incorporated as  appropriate.
We are sending copies of this report to the Secretary of Labor, the  Secretary of the Treasury, and the Director of the PBGC, appropriate  congressional committees, and other interested parties. In addition, the  report will be available at no charge on GAO’s Web site at  http://www.gao.gov.
If you have or your staffs any questions about this report, please contact  me at (202) 512-7215 or bovbjergb@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions are listed in  appendix III.
section_title: Appendix I: Survey Results of the Nation’s Largest Private DB Plan Sponsors
subsections: section_title: Defined Benefit (DB) Pensions: Survey Results of the Nation’s Largest Private DB Plan Sponsors
subsections: section_title: Survey Objectives
subsections: section_title: • Assess the impact of recent developments facing sponsors of
paragraphs: the nation’s largest private sector DB plans: 1) What recent changes have employers made to their  pension and benefit offerings?  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?
section_title: GAO Survey of the Largest DB Sponsors: Overview of Survey and Topics
section_title: GAO Survey of the Largest DB Sponsors: Sampling/Summary Statistics
subsections: section_title: Target group - A selection sample of the largest 100 private
section_title: GAO Survey of the Largest DB Sponsors: Significance and Interpretation
subsections: section_title: As a selection sample of the largest plans, results are not
paragraphs: generalizable to all DB plan sponsors.
However, the sample can serve as an important indicator of the  health of the private DB system and the sample’s possible  importance to the Pension Benefit Guaranty Corporation (PBGC)
The 44 sponsoring firms that responded represent an estimated:  25 percent (or $370 billion) of total DB system liabilities as of   19 percent (or 6 million) of the system’s DB participants  (active, separated-vested, retired as of 2004)
section_title: GAO Survey of the Largest DB Sponsors: Significance and Interpretation
subsections: section_title: Among the responding firms, the largest individual self-reported
paragraphs: business line was manufacturing, with other key areas being  finance and information. (Figure 1)
These firms reported employing on average 75,000 employees in  their U.S. operations in 2006.
section_title: GAO Survey of the Largest DB Sponsors: Context
subsections: section_title: The DB system has been in decline:
section_title: GAO Survey of the Largest DB Sponsors: Context
subsections: section_title: Survey conducted prior to:
section_title: Overview: Survey Findings
subsections: section_title: Between 1997 and October 2008:
section_title: Large DB Plan Sponsor Survey: Trends in DB Plan Sponsorship and Design
subsections: section_title: Trends in 401(k) Contributions among Large DB Plan Sponsors
subsections: section_title: Most DB plan sponsors also offered a DC plan, typically a 401(k) plan From 1997 to the time of survey response, most DB sponsors either
paragraphs: increased or did not change employer contributions to 401(k) plans for  their NB employees. (Figure 8)
Main reasons for change included redesigned matching formula as  well as compensation adjustments to attract top employees.
The vast majority of respondents reported that plans covering NB employees either increased or did not change employee contributions.    Main reasons among respondents reporting increased contributions included addition of automatic enrollment feature to one or more plans.  72 percent of large sponsors reported either using or planning to use  auto enrollment for plans covering NB employees (Figure 9).
section_title: Trends in 401(k) Contributions among Large DB Plan Sponsors: Bargaining Unit Employees
subsections: section_title: From 1997 to the time of survey response, most DB sponsors
paragraphs: either increased or did not change employer contributions to  401(k) plans for their bargaining unit employees. (Figure 8)
No single reason stood out for this result.
Bargaining unit employees of most sponsors did not change  employee contributions. (Figure 8)   50 percent of large sponsors with plans covering CB employees  reported either not using or not planning to use auto enrollment  (Figure 9).
section_title: Large DB Plan Sponsor Survey: Health Benefits for Active Employees and Retirees
subsections: section_title: Health care was the single largest benefit as a percentage of base pay
paragraphs: (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)
section_title: Large DB Plan Sponsor Survey: Health Benefits for Current Retirees
paragraphs: 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)
section_title: Large DB Plan Sponsor Survey: Health Benefits for Future Retirees
paragraphs: 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)
section_title: Retiree Health Care Represents a Significant Liability for DB Plan Sponsors
subsections: section_title: Large DB Plan Sponsor Survey: Conditions to Consider Forming New DB Plans
subsections: section_title: Most sponsors reported no possible conditions that could make
paragraphs: 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)
section_title: Implications/Concluding Observations
subsections: section_title: Stability of large sponsor plans now increasingly vulnerable to
section_title: Appendix II: Scope and Methodology
paragraphs: To achieve our objectives, we conducted a survey of sponsors of large  defined-benefit (DB) pension plans. For the purposes of our study, we  defined “sponsors” as the listed sponsor on the 2004 Form 5500 for the  largest sponsored plan (by total participants). To identify all plans for a  given sponsor, we matched plans through unique sponsor identifiers.
subsections: section_title: Population and Sample Design
paragraphs: We constructed our population of DB plan sponsors from the 2004 Pension  Benefit Guaranty Corporation’s (PBGC) Form 5500 Research Database by  identifying unique sponsors listed in this database and aggregating plan- level data (for example, plan participants) for any plans associated with  this sponsor. As a result of this process, we identified approximately  23,500 plan sponsors. We further limited these sponsors to the largest  sponsors (by total participants in all sponsored plans) that also appeared  on the Fortune 500 or Fortune Global 500 lists. We initially attempted to  administer the survey to the first 100 plans that met these criteria, but  ultimately, we were only able administer the survey to the 94 sponsoring  firms for which we were able to obtain sufficient information for the firm’s  benefits representative. While the 94 firms we identified for the survey are  an extremely small subset of the approximately 23,500 total DB plan  sponsors in the research database, we estimate that these 94 sponsors  represented 50 percent of the total single-employer liabilities insured by  PBGC and 39 percent of the total participants (active, retired, and  separated-vested) in the single-employer DB system as of 2004.
section_title: Administration of Survey
paragraphs: The Web-based questionnaire was sent in December 2007, via e-mail, to  the 94 sponsors of the largest DB pension plans (by total plan participants  as of 2004) who were also part of the Fortune 500 or Global Fortune 500.  This was preceded by an e-mail to notify respondents of the survey and to  test our e-mail addresses for these respondents. This Web questionnaire  consisted of 105 questions and covered a broad range of areas, including  the status of current DB plans; the status of frozen plans (if any) and the status of the largest frozen plan  (if applicable);   health care for active employees and retirees;    pension and other benefit practices or changes over approximately the last  10 years and the reasons for those changes (parallel questions asked for  plans covering collectively bargained employees and those covering  nonbargaining employees);   prospective benefit plan changes;  the influence of laws and accounting practices on possible prospective  benefit changes; and   opinions about the possible formation of a new DB plan.
The first 17 questions and last question of the GAO Survey of Sponsors of  Large Defined Benefit Pension Plans questionnaire mirrored the questions  asked in a shorter mail questionnaire (Survey of DB Pension Plan  Sponsors Regarding Frozen Plans) about benefit freezes that was sent to a  stratified random sample of pension plan sponsors that had 100 or more  participants as of 2004. Sponsors in the larger survey were, like the shorter  survey, asked to report only on their single-employer DB plans.
To help increase our response rate, we sent four follow-up e-mails from  January through November 2008. We ultimately received responses from  44 plan sponsors, representing an overall response rate of 44 percent.
To pretest the questionnaires, we conducted cognitive interviews and held  debriefing sessions with 11 pension plan sponsors. Three pretests were  conducted in-person and focused on the Web survey, and eight were  conducted by telephone and focused on the mail survey. We selected  respondents to represent a variety of sponsor sizes and industry types,  including a law firm, an electronics company, a defense contractor, a  bank, and a university medical center, among others. We conducted these  pretests to determine if the questions were burdensome, understandable,  and measured what we intended. On the basis of the feedback from the  pretests, we modified the questions as appropriate.
section_title: Nonsampling Error
paragraphs: The practical difficulties of conducting any survey may introduce other  types of errors, commonly referred to as nonsampling errors. For example,  differences in how a particular question is interpreted, the sources of  information available to respondents, or the types of people who do not  respond can introduce unwanted variability into the survey results. We  included steps in both the data collection and data analysis stages for the  purpose of minimizing such nonsampling errors.
We took the following steps to increase the response rate: developing the  questionnaire, pretesting the questionnaires with pension plan sponsors,  and conducting multiple follow-ups to encourage responses to the survey.
We performed computer analyses of the sample data to identify  inconsistencies and other indications of error and took steps to correct  inconsistencies or errors. A second, independent analyst checked all  computer analyses.
We initiated our audit work in April 2006. We issued results from our  survey regarding frozen plans in July 2008. We completed our audit work  for this report in March 2009 in accordance with all sections of GAO’s  Quality Assurance Framework that are relevant to our objectives. The  framework requires that we plan and perform the engagement to obtain  sufficient and appropriate evidence to meet our stated objectives and to  discuss any limitations in our work. We believe that the information and  data obtained, and the analysis conducted, provide a reasonable basis for  any findings and conclusions.
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: Contact
paragraphs: Barbara D. Bovbjerg, (202) 512-7215 or bovbjergb@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the contact above, Joe Applebaum, Sue Bernstein, Beth  Bowditch, Charles Ford, Brian Friedman, Charles Jeszeck, Isabella  Johnson, Gene Kuehneman, Marietta Mayfield, Luann Moy, Mark Ramage,  Ken Stockbridge, Melissa Swearingen, Walter Vance, and Craig Winslow  made important contributions to this report.