Pension freezing by our corporations: its spreading rapidly

from the article enbreastled:

"Companies Lock Younger Workers Out of Pensions" by Kaja Whitehouse, appearing in the Wall Street Journal, Tuesday, July 26, 2005, page D2.

Quotes:

"An increasing number of companies are 'freezing' their pensions to exclude new employees or workers under age 40."

"Last week, Hewlett-Packard Co. said it will freeze pension benefits based on age and tenure starting next year. Workers whose combined age and tenure equal a minimum of 62 will keep their pension benefits intact. Everyone else will lose the potential for further accruals, but will retain the benefits already accumulated. Federal law protects workers from losing a benefit they have already earned, but not from losing the promise of future benefits."

I'm sure it was a lawyer who helped figure out this loophole in the law.

"Companies that have taken similar actions in recent years include NCR Corp., Sears Holdings Corp., International Business Machines Corp. and Motorola Inc. IBM and Motorola both shut their defined benefit plans to new workers at the start of 2005. NCR froze pension benefits for workers under age 40 beginning last September and stopped offering its pension plan to new hires. Sears also stopped benefits for new workers and current employers under age 40 in 2004, but then changed course after its merger with Kmart. Sears announced this year that it will freeze plan benefits for all employees beginning in 2006."

"Until recently, companies looking to freeze their pensions would generally have considered freezing them and then converting them to cash-balance plans, says Craig Copeland, a senior research buttociate with Employee Benefit Research Insbreastute in Washington, D.C. The legality of cash-balance conversions is currently unclear, however, and employers are fearful of taking that route."

"Cash-balance plans are a type of defined-benefit plan, but they operate differently from traditional pensions. When a pension is converted to a cash- balance plan, the final benefit under the new plan can be calculated in such a way that older workers are hurt more than younger workers."

"Now, employers that seek to freeze their pension plans are simply moving workers to the 401(k), says Sylvester Schieber, U.S. director of benefits consulting with Watson Wyatt Worldwide in Arlington, VA., which advises employers with cash-balance plans. At the same time, Mr. Schieber says companies that freeze the plan for people under 40 may be doing so because of fear of age-discrimination suits, since people 40 and older are covered by labor laws."

***

"It's unclear how many companies have frozen their pensions and moved workers to 401(k) plans in recent years. Pension freezing isn't a reported event, says a spokesman for the Pension Benefit Guaranty Corp."

"In addition to freezing, companies can also terminate their plans. To do that, however, a company would need to be in serious financial trouble--as UAL Corp. was when it dumped its pension obligations onto the PBGC this year--or be able to fully fund the plan at the point of termination."

"William Arnone, a retirement expert" said "...freezing is expected to gain momentum in coming years...." and he also said that "At the same time, they eliminate a big chunk of the costs buttociated with paying future benefits."