Companies feel poor paying pensions… they have to freeze pension plans

A report released by Watson Wyatt revealed that about 1/3 of pension plans offered by Fortune 1,000 companies have been frozen. The report notes while the rate at which firms freeze plans decreased since its highest record in 2006 this year 190 plans have been terminated which is a 12% increase over the previous year. Higher freeze rates were reported by the industries that were hit hardest by the financial crisis.

"We think it's a short-sighted move that definitely hurts employees," says Nancy Hwa, spokeswoman for the Pension Rights Center. "But it's not surprising, given the way the economy is going."

"If a company is literally fighting for its survival, it's more likely to pull out all stops," says Alan Glickstein, senior retirement consultant at Watson Wyatt. "And that might include freezing a plan because they can pick up some savings."

Since 2004 when only 7.1% of Fortune 1,000 firms had initiated the freezing the percentage has increased rapidly. Still the largest percentage was recorded in 2006.

"The biggest surprise is that we haven't seen a huge surge," Glickstein says.

Yet, the report notes that the rate might be slowing as companies see that the freeze does not lead to much cost savings.

A general way the companies freeze their pension plans is that they close plan to new employees and stop providing any more benefits to existing workers. However, the companies do not take back those benefits that were already earned by their employees. And after freezing a pension, companies often increase their 401(k) matching contributions or take other steps to partially offset that pension reductions.