“Look Before You Leap: The Unintended Consequences of Pension Freezes,” specifically says that freezing a DB plan and moving to an individual defined contribution (DC) plan can:
- Increase costs to employers and/or taxpayers due to higher costs of operating two plans, erosion of economic efficiencies, and front-loaded contribution requirements; and
- Further exacerbate retirement insecurity concerns, which in turn can hamper worker recruitment and retention effort, result in higher turnover rates, create labor shortages, increase training costs, and lower productivity levels.
Additionally, the brief indicates that the replacement DC plan typically provides reduced benefits. As a result, fewer and fewer workers will receive adequate income in retirement.
The brief cites the case in West Virginia, where
the state, concerned that insufficient retirement income
would require some form of governmental assistance-such
as increased retirement benefits, welfare, or
Medicaid-“unfroze” the DB plan to ensure adequate, secure
retirement income. Reopening the DB plan is estimated to
save the state $22 million (see
WVA DC to DB Migration Could Mean Big
The full research brief can be accessed at www.nirsonline.org .