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Execs View Peers When Deciding Whether to Freeze or Close Pension Funds

October 26, 2007
Company executives are looking more at each other than their bottom lines when deciding whether to freeze or close a defined benefit plan, a new Wells Fargo & Co. survey finds.

The 2007 Strategic Initiatives in Retirement Plans Survey showed that following the trend of other firms was the main reason for 58 percent of those that froze their pension plans and for 60 percent of those that closed their plans.

“We were surprised that so many sponsors noted current trends as the key reason - not costs or volatility concerns - why they closed or froze their pension plans,” Laurie Nordquist, head of Wells Fargo Institutional Trust Services, said in a news release. “This apparent ‘herd mentality’ may reflect the tight labor market in some areas and employers wanting to keep their benefit plans competitive and appreciated by employees.”

Cost was a concern, though, with 34 percent of employers pegging it as the No. 1 challenge facing defined benefit plans. And excessive contribution requirements was the main factor that caused 42 percent to freeze - and 28 percent to close - their defined benefit plans.

The survey of 356 U.S. employers found that about 14 percent plan to close their defined benefit funds, 10 percent will freeze and 2 percent will terminate them within 18 months. Sixty-four percent said no changes are planned.

Eighty percent of employers who already froze or closed their plans added or enhanced defined contribution plans four times out of five. Most (68 percent) who did so believe the move would not negatively affect employees.

The survey, conducted by Wells Fargo’s employee benefits consulting group - Bryan, Pendleton, Swats & McAllister - was conducted online from April to May.

This story was originally posted by Pensions & Investments, a sister publication to Workforce Management.