Cost and volatility concerns related to defined benefit plans have led more than 20% of plan sponsors to either freeze or consider a freeze on pension plan benefits, according to research by Aon Consulting.
Studying more than 1,000 private sector DB plans, Aon found that 13% of plan sponsors have implemented a freeze since the beginning of 2001, with another 2% arranging for freezes by the end of this year. An additional 6% indicate they are actively contemplating a freeze.
The survey respondents cited the cost of plan contribution (45%) and contribution volatility (39%) as some of the major factors in their decision to freeze. The freezes come as the Senate debates continued use of the 30-year Treasury bond as the benchmark interest rate for determining funding requirements. The House has approved a new, temporary rate based on conservative, long-term corporate bonds.
"A change to funding requirements is absolutely necessary to avoid unnecessary plan freezes," observes Christopher Bone, executive vice president and chief actuary at Aon. "Without a solution that plan sponsors can live with, we are putting this vital retirement tool's existence at risk."