Robert L. Clark, Alan Glickstein, and Tomeka Hill
Abstract — This chapter examines the factors that affected plan sponsors’ decisions to convert a traditional defined benefit (DB) plan to a hybrid design during years 2000-2010. We use combined plan level data from Form 5500 filings and financial information from 10-Ks of Fortune 1000 companies to ascertain how the financial status of the plan sponsor, pension plan funding, and costs affected a decision to convert from a traditional DB plan to a hybrid design. We also explore the timing of such conversions relative to major changes in federal regulations, specifically the passage of the Pension Protection Act of 2006 and the ensuing regulations as well as in response to the economic crisis. We examine whether firms that converted in the early part of the decade did so for reasons that were different than those who converted in later part of the decade. We assess the role of the financial status of the plan sponsor in the conversion decision and compare this to the influence of the plan funding ratio, the investment patterns, and the overall plan cost. We also describe the influence the economic crisis is likely to have on the choice of plan type.