PBGC Study Finds 9.4% of Pension Plans Frozen
In the first comprehensive study of frozen defined benefit pension plans (PDF), the Pension Benefit Guaranty Corporation found that 9.4 percent of plans had halted participants’ benefit accruals as of 2003, the most recent year for which complete data are available.
To date, the principal source of data on frozen defined benefit pension plans has come from client surveys conducted by benefits consulting firms. The PBGC study is the first to examine the Form 5500 annual reports that administrators of qualified pension plans must file with the federal government. The 2003 data indicated that while 9.4 percent of all plans were frozen, only 2.5 percent of participants were affected because most frozen plans were small.
Breaking out the survey data by plan size, the PBGC found that 10.1 percent of small plans (those with fewer than 100 participants) were frozen, affecting 12.5 percent of the participants in these plans. At the other end of the spectrum, 2.2 percent of large plans (with more than 5,000 participants) were frozen, affecting only 1 percent of their participants.
The Form 5500 data for 2003 also showed that, on average, frozen plans are not as well funded as non-frozen plans. Half of frozen plans were less than 80 percent funded on a current liability basis, versus one-third of non-frozen plans. Industries more likely to have frozen plans included fabricated metals, apparel and textiles, rubber and plastics, primary metals, and retail trade. Plan freezes were less likely in the public utility, motor vehicle, and the finance, insurance and real estate industries.
The impact of plan freezes on the PBGC’s financial condition is likely to be mixed, the study says. On the one hand, to the extent that frozen plans are more likely to be terminated by employers, the number of participants in the system would decline and the PBGC’s flat-rate premium would be reduced. On the other, to the extent that frozen plans become better funded as a result of the cap on new benefit accruals, claims against the pension insurance program are likely to be smaller.