Posted on: Thursday, June 23, 2005
11% of large companies curtailing pension plans
By Adam Geller
Associated Press
NEW YORK — Big employers sharply accelerated freezes and terminations of pension plans last year, steering away from the increasing expense and uncertainty of paying for workers' retirement, a new study says.
That trend, long in the making, has continued into this year, most notably with United Airlines defaulting on its severely underfunded pension plans. Whether it continues could hinge on how lawmakers resolve difficult questions swirling around pensions, experts say.
About half of the companies that froze pension accruals or terminated plans last year are financially troubled businesses, the study found.
But even many healthy companies are rethinking pensions, partly because of the uncertain legal status of some pension plans. Many companies that were able to get by for years with minimal contributions to their pension plans are now faced with massive increases in required payments. Congress is debating whether to jack up the premiums that companies pay the federal government to insure their pension plans.
That could lead even more companies to abandon pensions.
"The companies are operating in a world of uncertainty," said Sylvester Schieber, director of U.S. benefits consulting at Watson Wyatt. "Big companies that continue to be viable, for the most part, have not cut and run, although if we go on indefinitely with this uncertainty they undoubtedly will."
Nearly two-thirds of the 1,000 largest U.S. companies still sponsor a pension plan. But last year 71 of those companies froze or terminated plans, up from 45 in 2003.
In a freeze, an employer leaves a plan in place, but current workers cannot accrue any additional benefits. In a termination, a company closes down a plan, defaulting to the federal government or moving pension funds into an insurance policy that will eventually pay out to workers.
Many pension plans were squeezed in the early part of this decade by plummeting stock prices that cut sharply into investment returns. Interest rates, which companies use to determine how much they need to set aside to satisfy eventual pension payouts, were at a record low — driving up the necessary costs.
The stock market has recovered considerably. But pension plans remain under pressure, partly because administrators spread the cost of the market downturn out over five years.
About 11 percent of the big companies offering traditional pensions terminated their plans or froze accrual of new benefits to workers, according to a new study by consulting firm Watson Wyatt Worldwide. That's up from 2003, when 7 percent of the nation's 1,000 largest companies capped pension plans.
