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For the first time, there are more defined contribution (DC) plans in the United Kingdom than defined benefit plans, according to a Hewitt study of more than 275 organizations earlier this year. Defined contribution plan assets are also rising significantly, with 9% of plan sponsors in the survey indicating they have assets of more than 50 million pounds. In 2004, not one plan sponsor indicated assets of that size.

A major shift in retirement strategy was reported among employers, with the focus shifting away from cost control. Originally, organizations set up DC plans to reduce costs associated with paying out defined benefits based on final year salary. Most now feel that this cost control issue has been met, and are concentrating on how to make the DC plans as successful as possible among employees.

The participation rate—the number of employees in the plan—is their leading indicator of success, according to almost three-quarters of organizations in the survey. But the news on this front is disturbing: The study showed the number of employees contributing to DC plans in 2005 actually decreased from the prior year, with less than half of eligible employees participating.

Employers are also looking at the level of member contributions as another key indicator of success. The average contribution paid into a DC plan is 11% of pay, with 4% coming from employees and the remaining 7% from employers. Not surprisingly, the level of employer contributions affects the participation rate. Plans offering employer contributions of less than 5% have participation rates around 34%, while those offering an employer contribution of 10% or more see participation jump to 67%.

One goal identified in the survey is for companies to improve their employee communications by targeting messages more effectively and also simplifying the technical language. "Member communications designed to emphasize personal responsibility and stimulate savings by employees are critical to the success of DC plans," explains Kevin Wesbroom, a senior consultant in Hewitt's London office. "It's clear that a one-size-fits-all communications plan doesn't work, and companies need to tailor their messages to key segments in the workforce."

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