One Fifth of DB Participants Had Plans Frozen

July 21, 2008 ( - More than one fifth of active defined benefit plan participants have had their plans frozen as part of the continuing trend for employers to redirect new employees to a defined contribution program, a new report says.

The Government Accountability Office (GAO) report prompted a statement released Monday by U.S. Congressman Earl Pomeroy (D-North Dakota) calling the report “disturbing.” The GAO report, entitled “Defined Benefit Pensions: Plan Freezes Affect Millions of Participants and May Pose Retirement Income Challenges,” said 3.3 million Americans will have lower pension income because of the defined benefit freeze trend.

“The accelerating trend in pension freezes is disturbing, especially as employers face greater economic pressure today,” Pomeroy said in the statement. “For older workers, a frozen pension can leave them with little time to make up for the loss in income under a 401(k) plan”

The report quotes data from the Pension Benefit Guaranty Corporation (PBGC), the nation’s private sector pension insurer, showing that the number of single employer plans frozen at the end of 2005 increased by 48% in the two-year period after 2003.

“GAO found that sponsors decided to freeze pensions for two main reasons – because of the impact on cash flow and funding volatility, both of which have increased under PPA (Pension Protection Act),” Pomeroy continued. “Unfortunately, faced with greater uncertainty employers may decide that offering a pension no longer makes good business sense. More frozen pensions would mean a big loss for workers who already are increasingly less confident about their retirement security.”

The GAO report is available here . DB plan survey results are available here .