US - The supposed exodus from DB plans had been overstated, while nearly one in ten pensions plans were frozen, according to the Pension Benefit Guaranty Corporation (PBGC).
In a study of the most recent year for which data was available, 2003, it emerged DB plans might not be closing down as fast as previously assumed, said PBGC executive director Bradley Belt.
While anecdotal evidence suggests that the number of frozen pension plans has increased since 2003, reports of a mass exodus from the DB pension system appear to be overstated, said Belt. As long as employees place a high value on defined benefit plans, companies will continue to view them as a valuable recruitment and retention tool.
The study also found 9.4% of pension plans halted participants’ benefit accruals as of 2003. However, the situation was not as dire as it sounded, with only 2.5% of participants affected as most frozen plans were small, the PBGC said.
The data also showed that frozen plans were, on average, not as well funded as non-frozen plans. Half of frozen plans were less than 80% 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 was likely to be mixed, the study found.
“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,” the PBGC said.
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