Results
Results
Plan size
More than 9 percent of PBGC-insured single-employer plans (more than 2,700 of the 29,000 plans for which 2003 data are available) were hard-frozen in 2003. As shown in Table 1, small plans were more likely to be frozen than larger plans. Ten percent of plans with fewer than 1,000 participants were hard-frozen. The percentage of frozen plans decreased as the size of the plan increased. Only 2 percent of the plans with 5,000 or more participants were hard-frozen.
| Table 1. | Percentage of PBGC-Insured Single-Employer Plans That Had a Hard Freeze in Place in 2003, by Plan Size |
| Plan Size | Percent Hard-Frozen | Group's Percentage of All Plans |
| Less than 100 | 10.1 | 65.2 |
| 100 - 999 | 9.5 | 23.4 |
| 1,000 - 4,999 | 6.2 | 7.7 |
| 5,000 or more | 2.2 | 3.6 |
| Total Percent | 9.4 | 100.0 |
Participants in hard-frozen plans
The percentage of participants in hard-frozen plans, 2.5 percent, is substantially smaller than the percentage of plans that are frozen. (See Table 2.) This is understandable given that small plans are more than four times as likely to be hard-frozen as large plans. As with the percentage of frozen plans, the percentage of participants in frozen plans declines as plan size increases. More than 12 percent of participants in plans with fewer than 100 participants were in hard-frozen plans, but only 1 percent of participants in large plans of 5,000 or more participants had their benefit accruals frozen.
The percentage of active participants who are in hard-frozen plans (less than 2 percent) is even smaller than the percentage of all participants in these plans. This could be due to an accounting anomaly. Once a plan is frozen, the plan's administrator might no longer consider the company's employees to be active participants. The administrator might count them as separated vested participants instead. On the other hand, if the sponsor froze the plan because of financial hardship, it might very well have implemented a reduction-in-force, which would move active participants into the separated vested participant category. While not shown in the table, about one-third of the participants in frozen plans are listed as active participants and 40 percent as separated vested participants. In plans that are not frozen, about half the participants are reported to be active participants and 25 percent as separated vested participants.
| Table 2. | Percentage of All Participants and All Active Participants in Hard-Frozen PBGC-Insured Single-Employer Plans in 2003, by Plan Size |
| Plan Size | Percent of All Participants | Percent of All Active Participants |
| Less than 100 | 12.5 | 8.1 |
| 100 - 999 | 9.1 | 6.5 |
| 1,000 - 4,999 | 6.2 | 3.7 |
| 5,000 or more | 1.0 | 0.7 |
| Total Percent | 2.5 | 1.8 |
Type of single-employer plan
The plans PBGC insures may base benefits on a percentage of the participants' compensation or on a flat-dollar amount, or they may be hybrid plans. Currently there is much uncertainty about whether Cash Balance plans, the primary type of hybrid plan, meet all the conditions to be judged a "qualified" plan. Many of the plans rumored to be frozen or whose sponsors are rumored to be considering freezing their plans are hybrid plans. Table 3 shows that, in 2003, hybrid plans were less likely to have been hard-frozen (6 percent) than either pay-based plans (9 percent) or flat-dollar plans (10 percent).12 The uncertainty that surrounds hybrid plans has not yet resultedin a strong move toward freezing them. Sponsors of hybrid plans appear to be adopting a wait-and-see-what-the-Congress-will-do attitude.
| Table 3. | PBGC-Insured Single-Employer Plans With a Hard Freeze in 2003, by Type of Plan |
| Type of Plan | Percent Hard-Frozen | Group's Percentage of All Plans |
| Pay-Based | 8.8 | 80.9 |
| Flat-Dollar | 9.6 | 15.0 |
| Hybrid | 5.7 | 5.8 |
| Not Reported | 24.9 | 3.2 |
| Total | 9.4 | 100.0 |
| Note 1: | Group's Percentages add to more than 100 percent (104.9 percent) primarily because a number of plans reported being both a hybrid plan and also either a pay-based or flat-dollar plan. |
| Note 2: | The percentage of plans that were hybrid plans in 2003 is higher here than reported in the "Pension Insurance Data Book 2004" because the "Data Book's" numbers are based on conditions at the beginning of 2003. The data in Table 3 are, for the most part, based on conditions at the end of 2003. |
Funding level of frozen plans
On average, frozen plans are less well funded than unfrozen plans. Table 4 compares the current-liability-funded status of frozen and unfrozen plans.13 Almost half the frozen plans, but only a third of the unfrozen plans, had current-liability-funded ratios of less than 80 percent. Another quarter of each type of plan was between 80 and 100 percent funded on a current liability basis. Because plans are almost always better funded on a current liability basis than on a termination basis, it is safe to assume that in 2003 more than 75 percent of the frozen plans and more than 60 percent of unfrozen plans were underfunded on a termination basis.
The poor funded condition of many of the frozen plans would appear to provide credible support for the notion that sponsors of many frozen plans would like to terminate them but cannot currently afford to do so. Indeed, more than 20 percent of the frozen plans reported in 2003 that a decision had been made to terminate them. Such a termination decision was reported for only 7 percent of the unfrozen plans. Certainly, for many of these underfunded plans, it would be very costly for the sponsor to make a contribution large enough to close the plan out with a standard termination. Nevertheless, while a large percentage of frozen plans were underfunded in 2003, one cannot necessarily conclude that the majority of the sponsors of frozen plans actually want to terminate these plans. Plans are frozen for a variety of reasons, and sponsors may find certain advantages to maintaining a frozen plan, even if it is fully funded on a termination basis.14
| Table 4. | Current-Liability-Funded Ratios of Frozen and Unfrozen Plans, 2003 |
| Funded Ratio | Frozen Plans | Unfrozen Plans |
| Less than 60 percent | 15.0 | 8.3 |
| 60 - 79 percent | 33.1 | 26.6 |
| 80 - 99 percent | 25.2 | 26.0 |
| 100 percent or better | 16.6 | 28.9 |
| Missing | 10.1 | 10.1 |
| Total | 100.0 | 100.0 |
| Percent of All Plans | 9.4 | 90.6 |
As shown in Table 5, small frozen plans were more likely than larger plans to be very poorly funded. Almost 20 percent of small plans were less than 60 percent funded on a current liability basis, whereas less than 10 percent of larger plans were this poorly funded. However, another 20 percent of small frozen plans were very well funded and had assets that at least equaled the plans' current liabilities. A smaller percentage of the larger plans were this well funded. (Small plans have fewer reporting requirements than larger plans and were much more likely to be missing the data needed to determine their funded ratios.)
| Table 5. | Percent of Frozen Plans, by Funded Ratio and Plan Size, 2003 |
| Funded Ratio | Plan Size | |||
| Less than 100 | 100 - 999 | 1,000 - 4,999 | 5,000 or more | |
| Less than 60% | 17.4 | 10.1 | 5.0 | 8.7 |
| 60 - 79% | 26.8 | 46.0 | 57.9 | 47.8 |
| 80 - 99% | 22.4 | 33.2 | 27.9 | 21.7 |
| 100% or better | 19.6 | 9.2 | 8.6 | 17.4 |
| Missing | 13.7 | 1.6 | 0.7 | 4.3 |
| Total | 100.0 | 100.0 | 100.0 | 100.0 |
| Percent of All Frozen Plans | 70.4 | 23.6 | 5.1 | 0.8 |
Sponsors of multiple plans
Companies sponsoring two or more plans represent about 6 percent of all companies sponsoring PBGC-insured single-employer plans.15 (See Table 6.) These companies sponsor about 15 percent of the single-employer plans PBGC insures. Companies sponsoring multiple plans are more likely to have hard-frozen at least one of their plans than are companies that sponsor only one plan (15 percent versus 10 percent). However, a smaller percentage of plans of these multiple plan sponsors have been frozen (8 percent) than plans of sponsors of only one plan (10 percent). Among those sponsors of multiple plans that froze at least one plan, two-thirds froze only one plan while 25 percent (but just 4 percent of all multiple plan sponsors) froze all the plans the company sponsored.
| Table 6. | Characteristics of Companies That Sponsor Only One PBGC-Insured Single-Employer Plan and Companies That Sponsor Multiple Plans, 2003 |
| Percent of: | Sponsors of One Plan | Sponsors of Multiple Plans |
| All sponsors | 93.6 | 6.4 |
| All plans | 84.6 | 15.4 |
| All frozen plans | 86.5 | 13.5 |
| Sponsors' plans that are frozen | 9.6 | 8.2 |
| Sponsors freezing any plans | 9.6 | 15.0 |
| Sponsors freezing only one plan | 9.6 | 9.7 |
| Sponsors freezing all plans | 9.6 | 3.6 |
Industry
Certain industries are more likely to have hard-frozen plans than others, as shown in Table 7. Plans in the Fabricated Metal Products (16%), Apparel and Textile Products (16%), Rubber and Plastics (12%), Primary Metals (12%), and Retail Trade (12%) industries are the most likely to be hard-frozen. Plans in the Utilities (3%), Motor Vehicles (5%), and Finance, Insurance and Real Estate (6%) industries are the least likely to be hard-frozen.
| Table 7. | Percentage of PBGC-Insured Single-Employer Plans That Had a Hard Freeze in Place in 2003, by Industry |
| Industry | Percent Hard-Frozen | Industry's Percentage of All Plans |
| Agriculture, Mining and Construction | 9.1 | 8.4 |
| Manufacturing | 10.1 | 26.9 |
| Apparel and Textile Products | 15.9 | 1.0 |
| Chemicals and Allied Products | 7.6 | 2.3 |
| Fabricated Metal Products | 16.1 | 4.6 |
| Food and Tobacco Products | 8.5 | 2.4 |
| Machinery and Computer Equip. | 12 | 3.3 |
| Motor Vehicles | 4.6 | 1.1 |
| Primary Metals | 12.3 | 1.6 |
| Rubber and Plastics | 12.4 | 1.4 |
| Other Manufacturing | 10.2 | 9.2 |
| Transportation and Public Utilities | 7.2 | 3.6 |
| Air Transportation | 12.1 | 0.2 |
| Other Transportation | 9.5 | 2 |
| Public Utilities | 2.7 | 1.3 |
| Wholesale Trade | 11.8 | 7.2 |
| Retail Trade | 12.3 | 5.1 |
| Finance, Insurance and Real Estate | 5.6 | 17.4 |
| Services | 8.9 | 31.4 |
| Total | 9.4 | 100 |
Collective bargaining status
One would suppose that collectively bargained plans are much less likely to be frozen because either the negotiating employees' group must agree to the freeze or the sponsor must be in bankruptcy and receive permission from the bankruptcy court to freeze the plan. However, the 2003 Form 5500 data suggest this is not the case as far as hard-frozen plans are concerned. Seven percent of the collectively bargained plans were hard-frozen compared with 10 percent of the non-collectively bargained plans.
Next Page > Conclusions
12 Most hybrid plans were created by converting a traditional defined benefit plan to a hybrid plan. In many converted Cash Balance plans, the benefits that had been accrued under the traditional plans were converted to an opening account balance for the Cash Balance plan. All benefits will be paid from these accounts. In other Cash Balance plans, the benefits accrued under the traditional plans were frozen and the Cash Balance accounts began with a $0 balance. The benefits that will be paid from these plans will combine the frozen benefits from the traditional plans and the account balances from the Cash Balance plans. Even though the benefits from the traditional component of these plans were frozen, the active participants continue to accrue benefits from the Cash Balance component, so these plans should not be characterized as frozen plans.
13. Current liabilities are a proxy for the plan's accrued liabilities at a point in time. They are generally smaller than the plan's termination liabilities, a measure of what it would cost the sponsor to close out the plan by purchasing annuities for all participants. Because the liabilities are the denominator in the funded ratio, a smaller measure of liabilities will yield a higher reported funded ratio. Thus, a plan's current-liability-funded ratio will generally be higher than its termination-funded ratio.
14. Sponsors may be reluctant to terminate a frozen plan that is significantly overfunded because the asset reversion tax would prevent them from recovering a substantial portion of the plan's surplus assets.
15. This figure is based on plans sponsored by unique employer identification numbers (EINs). Some companies, especially controlled groups, have several different EINs. In this section, each unique EIN is assumed to represent a separate company.