August 31, 2009
Many employers have opted to freeze their current defined benefit plan and provide an alternative. Data from the March 2008 National Compensation Survey on employee benefits indicate that a fifth of all private industry workers participating in a defined benefit plan are affected by a freeze.
Alternatives available to employees may include a new defined benefit plan, a new defined contribution plan, or an enhanced existing defined contribution plan.
As the number of defined benefit plans decreases and the number of frozen plans increases, there could be major negative implications for those workers in the later stages of their career, where plan contributions are often at their highest.
When a defined benefit plan is frozen, the employer may restrict entry into the plan and limit future contributions. The degree to which contributions and entry is limited will depend on the type of freeze. In some cases, an employee may stop accruing benefits in the event of a freeze, but the plan will continue in operation, protecting the benefits already accrued.
These data are from the Employee Benefits Survey. To learn more, see "Alternatives to Frozen Defined Benefit Pension Plans," by Scott F. Curtin in the August 2009 issue of Compensation and Working Conditions Online.