Going the extra mile to keep workers: US companies revive pension plans

Defined-benefit corporate pensions in the United States, which once seemed headed for extinction, are drawing renewed attention. A growing number of companies — particularly in industries where competition for talent is fierce — are reviving pension plans, using them as a bargaining chip in wage and benefits negotiations with unions or as a tool to attract and retain workers.

IBM, meat-processing giant JBS Foods and New York- and Connecticut-based health system Northwell Health are among the most prominent companies reintroducing or newly launching pension plans, according to the Wall Street Journal. Unlike a 401(k) — a defined-contribution plan in which employees set aside a portion of their own pay — a corporate pension is typically funded by the employer and provides a fixed income for life after retirement.

The 2008 financial crisis dealt a severe blow to corporate pensions. As share prices collapsed and funding regulations tightened, many companies could no longer bear the financial burden and stopped enrolling new members, steering workers toward 401(k) plans instead.

Matthew Cronin, 27, recently became eligible for pension benefits through PECO, an electricity and natural gas supplier. He plans to keep contributing to his 401(k) as well, but expects the pension to fill any gap left by potential future cuts to Social Security. "Having a pension is a huge motivator to stay with the company," he said.

According to the Employee Benefit Research Institute, a nonprofit research organization, fewer than 10 percent of private-sector workers in the United States were enrolled in a defined-benefit pension plan in 2024 — a sharp drop from roughly 30 percent in 1988. Public-sector workers, by contrast, remain far more likely to have pension coverage.

John Lowell of pension consulting firm October Three said recent structural changes to some pension plans have reduced the financial risk for employers.

Traditional pensions guarantee a lifetime payout based on years of service and salary level regardless of market conditions, making cost volatility a persistent headache for companies. To address that problem, IBM and some other firms began converting their traditional pensions to "cash balance" plans as far back as the 1990s. Under a cash balance plan, the employer credits a set percentage of an employee's annual salary to an individual account each year and guarantees a fixed rate of return, typically tied to government bond yields.

Olivia Mitchell, a pension expert and professor at the University of Pennsylvania's Wharton School, said these changes have largely resolved the funding risk and cost uncertainty that made traditional pensions so unappealing to employers. "It's not a full return to a pension-centric system, but a selective revival is underway," she said.

According to pension administrator Future Plan by Ascensus, about 26,000 employers operated cash balance pension plans in 2023, up from about 23,000 in 2020. Most were relatively small companies.

Market conditions are also prompting companies to take another look at pensions. Rising share prices and higher bond yields have made it easier to cover future pension obligations. Many plans — including some that had been frozen — now hold assets that exceed their liabilities, and companies can direct that surplus toward pension benefits for current employees.

According to data compiled by pension consulting firm Milliman, the top 100 US corporate pension plans currently hold assets equal to 112 percent of their liabilities — up from just 77 percent in 2012.

Unions pushing for pension restoration are also notching wins. Delta Air Lines and Southwest Airlines have recently introduced cash balance pension plans for their pilots. "There's quite a strong push from the participant side to restart these plans," said Zorast Wadia, a principal at Milliman.

Northwell Health began phasing in a traditional pension plan for nurses and administrative staff last summer. Payouts are calculated based on years of service and salary over the most recent 10 years. Because only about one-third of its 108,000 employees are eligible, the company said it is confident it can manage the long-term pension liability.

PECO also began contributing 3 to 8 percent of eligible union employees' annual pay into cash balance pension accounts in August, with the contribution rate rising with age. However, PECO's parent company Exelon drew a line in a statement, saying the agreement "should not be viewed as a precedent for other negotiations."