Blogging Employee Benefits

January 23, 2006

Preparing for the Deep Freeze

Filed under: Pensions — Fuguerre @ 10:51 am

Food for thought on what this movement in pension funding might really mean for the golden years for years to come.

Workplace Prof Blog covers Walsh’s NYT article about the recent rush of pension plan freezes. Charts in that article prepared by EBRI‘s VanDerhei can’t possibly cover all the variations, but one painful message does come through: regardless of the frozen pension plan’s level of benefit accruals and regardless of how much the company boosts its 401(k) plan to make up for the freeze, older workers will tend to fare worse by the switch than might younger workers.

That difference between the DB and DC designs has been acknowledged and discussed and tinkered at from almost every conceivable angle for decades already; but this current pension ice age is going to give that old debate a whole new practical edge. Some of the companies freezing their plans have taken measures to protect their current long-service employees, much in the same manner as some companies protected against wear-away in conversions to cash balance pension plans. But for many other companies, the exchange between lost pension accruals and boosted 401(k) contributions will balance out only at mid-career or younger. And even the younger employees will eventually find that the contributions they will be making 20 years from now won’t be keeping pace with what those pension accruals would have given.

1 Comment »

  1. See EBRI Issue Brief #291 for more detail on DB plan freezes.

    Comment by Fuguerre — March 11, 2006 @ 6:09 pm

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