Conclusions

Conclusions

The data indicate that almost one out of every ten single-employer pension plans insured by PBGC were hard-frozen as of the 2003 plan year. Most of the hard-frozen plans are small plans. Only 2.5 percent of all participants and fewer than 2 percent of the active participants in all PBGC-insured single-employer plans are affected by these hard freezes.

From PBGC's perspective and from a company's financial perspective, the freezing of benefit accruals has little short-term impact. Plans continue to pay premiums based on the number of participants in the plan even though the companies' workers (the active participants) are no longer accruing benefits. Companies with frozen plans are still required to make the minimum required contributions to the plan. Because the companies' workers are not accruing new benefits that have to be funded, over time it should be somewhat easier for the sponsors of underfunded frozen plans to fully fund their plans.

From a longer-term perspective, freezing plans and closing them to new entrants could have a significant effect on the defined benefit system. The data indicate that sponsors are more likely to have made a decision to terminate frozen plans than unfrozen plans. This, combined with the closing of the frozen plans to new entrants, even for those that do not terminate, suggests that the growth rate for total insured participants will slow or perhaps even reverse itself. This will cause PBGC's flat-rate premium income to be less than it would be if the plans had not been frozen or closed to new entrants. If the funding levels of the frozen plans improve, the PBGC's variable-rate premium income could also be reduced, making it more difficult for PBGC to recover from its current negative net financial position. PBGC's anticipated claims should also be smaller because of the improved funding in these plans, however.

The findings of this study show that the significant changes taking place in the defined benefit system are more widespread than indicated by the long-term and continuing decline in the number of defined benefit plans. And even the results of this study do not show the full extent of the decline in the defined benefit system. While we know that nearly 10 percent of the remaining PBGC-insured plans were hard-frozen as of 2003, an unknown number of additional plans have been frozen to a lesser degree or closed to new entrants, and these numbers have almost certainly increased in the past two years.