The number of companies that have frozen their traditional pension plans has accelerated sharply this year, a trend that will likely continue as companies wrestle with declining profits and poor investment returns.
At least 16 companies have announced plans to freeze their pensions so far this year, vs. 18 for all of 2008. Last week, Wells Fargo told its employees that their pension plans will stop accruing benefits July 1.
When a pension is frozen, employees get to keep the benefits they've already earned, but the company usually won't contribute any more money. Older employees are particularly hard hit because they have less time to make up for the loss, says Nancy Hwa, spokeswoman for the Pension Rights Center.
Severe investment losses in 2008 shrank the assets of the nation's largest pension plans to 79% of projected liabilities, down from 109% at the end of 2007, according to an analysis by Watson Wyatt. Companies, already hurting in the weak economy, have to increase contributions to make up the difference, and are facing stricter federal requirements about funding the plans.
More companies will freeze their pension plans unless Congress temporarily relaxes the funding requirements, says Dena Battle, director of tax policy for the National Association of Manufacturers. "When your funding obligations triple and you don't have the cash to deal with that and you don't get relief from Congress, you have to make hard choices," she says.
Pension-rights advocates and some lawmakers support giving relief only to companies that agree not to freeze their plans.
"Congress will be hesitant to provide pension fund relief without assurance that employers would protect benefits of rank-and-file employees and not divert funding relief to other uses," such as corporate bonuses, says Sandra Salstrom, a spokeswoman for Rep. Earl Pomeroy, D-N.D., who is drafting a pension relief bill.
Battle says many plan sponsors would reject relief on those terms. The employer-sponsored retirement system, "has always been voluntary," she says. "We work very hard to preserve that."