BOSTON (TheStreet) -- Pension plans, also known as direct-benefit plans, are going the way of the $10 health-insurance co-payment, the thrift savings plan and the lifelong job guarantee.

Companies are increasingly finding pension plans too expensive, too complicated and too risky when compared with 401(k) plans. Dow-member companies dominate the list of those that offer conventional pensions.

A survey by Towers Watson, the global consulting firm, found that only 17% of Fortune 100 companies still offer a direct-benefit plan, down from 67% in 1998. Those that offer direct-contribution plans, such as 401(k)'s, total 58%, up from 10%. Despite the decline, many of the country's best-known companies still offer pensions to at least some employees.

General Electric ( GE), in its annual report, said its plan was fully funded as of Jan. 1 and running effectively enough that it shouldn't have to subsidize it this year or next. It holds assets of $58.3 billion.

Responding to stock-market conditions, Exxon Mobil ( XOM) contributed $3 billion to its U.S. plans, up from $53 million in 2008.

Other large direct-benefit plans include AT&T ( T), Verizon ( VZ), Ford ( F), Lockheed Martin ( LMT), UPS ( UPS), Honeywell ( HON), Johnson & Johnson ( JNJ), Procter & Gamble ( PG), Hewlett-Packard ( HPQ), 3M ( MMM), Pepsi ( PEP), Bank of America ( BAC), Citigroup ( C) and Wachovia.

According to Towers Watson, 58 companies in the Fortune 100 currently offer only a direct-contribution plan to new hires. Others are increasingly considering "hybrids," such as cash-balance plans.

Proponents claim that hybrid plans reduce costs for employers. Participants in cash-balance plans also continued to see their pension accounts grow during the financial crisis, unlike the sizable drops suffered by most 401(k) accounts.

In a cash-balance plan, a participant's account is compensated each year with a set employer contribution and interest credit (either a fixed rate or a variable rate linked to an index such as the 1-year Treasury bill rate). When a participant is eligible to receive benefits under a cash-balance plan, the distribution is either a lump-sum payment or given as an annuity. Investment risk is borne by the employer.

Still, The National Institute on Retirement Security, a non-profit advocacy group, makes the case that pensions can provide same benefit as individual 401(k) plans at half the cost.

In a research paper, A Better Bang for the Buck: The Economic Efficiencies of Defined-Benefit Pension Plans, it says defined-benefit plans pool longevity risks among large numbers of individuals. Because defined-benefit plans, unlike investors, don't age, "they are able to take advantage of the enhanced investment returns that come from a balanced portfolio throughout an individual's lifetime."
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The report adds that defined-benefit plans, because they're professionally managed, achieve superior investment performance when stacked up against individual investors in 401(k) plans who are left on their own to decide how much to save, how to invest their funds and how to modify investments over time.

For the companies maintaining traditional plans, keeping them properly and legally funded is a challenge.

According to global consulting firm Mercer, the funded status of pension plans sponsored by S&P 1500 companies was 79% at the end of May, compared with 84% two months earlier. That equals an increase in aggregate pension deficits of $84 billion -- from $252 billion at the end of March to $336 billion at the end of May.

Any drop in funded status means that companies, to comply with federal standards, are on the hook for making up the difference and ensuring that retirees don't miss a payment.
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In 2003, General Motors had to float a $19 billion bond to keep its plan solvent. By the time it filed for bankruptcy last year, the pension shortfall was more than $20 billion.

In March, the Pension Benefit Guaranty Corp., the government agency that insures corporate pensions much the same way the FDIC protects bank accounts, took over a pension plan that covered 5,800 workers at a California plant that was a joint venture between GM and Toyota ( TM). At the time of the takeover, the plan was only 55% funded.

The Pension Benefit Guaranty Corp., which receives no government funding, is itself running more than $22 billion in the red and could soon reach a $30 billion shortfall due to the ever-increasing number of orphaned and insolvent plans dropped at its doorstep. It expects to assume liabilities of as much as $86 billion by 2015.

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