Saturday, August 26, 2006


Freezing Pensions: Brrr!



Talking about defined benefit plans is a little like listening to the Beatles.

You say yes, I say no.
You say stop and I say go go go, oh no.
You say goodbye and I say hello
Hello hello
I don't know why you say goodbye, I say hello
Hello hello
I don't know why you say goodbye, I say hello.

While some advocate their use as a means to attract and retain employees, others intimate their inevitable demise. Either way, one thing is certain. More and more companies seem to favor plan freezes in order to cut costs.

Dow Jones Newswire reporter Steven D. Jones points out that the newly enacted Pension Protection Act of 2006 encourages freezes by compelling companies to fully fund their obligations within a prescribed period of time.

Whether a freeze is "soft" and shuts out new entrants or "hard" and also halts benefits from further accruing, current retirees are not typically impacted. On the other hand, people in the system could end up with less money when benefits are tied to time in the plan.

Even when companies are flush with cash, freezing may make sense. Retiree longevity comes with a hefty pricetag in terms of funded benefits. Moreover, forthcoming accounting rules will force disclosure of pension obligations onto the balance sheet, an unwelcome event for some, especially if it leads to loan covenant breach.

Even writing from a few sunny vacation days in Arizona, this author has to admit that the pension climate sometimes seems downright Arctic.

Jacket anyone?
posted by Susan Mangiero at 8/26/2006 07:39:00 AM