Long before employers began to analyze and implement such pension plan risk-reduction strategies as “buyins and “buyouts” and large-scale conversions from annuities to lump-sum benefit payments, they began to deploy a more basic strategy: freezing their defined benefit plans.

In a freeze, employees do not accrue benefits beyond a set date, stopping the growth of new liabilities. Employers remain responsible for already accrued benefits—and risks such as fluctuating interest rates and investment results that can cause big swings in required contributions to fund those benefits.

Freezes are a type of pension plan “de-risking,” but they are only a limited way to reduce risk, said Arthur Noonan, a senior vice president with Mercer L.L.C. in Pittsburgh.

Research by benefits consulting firm Towers Watson & Co. shows just how widespread pension plan freezes have become.

In 2004, 73% of Fortune 100 companies offered a defined benefit plan to new salaried employees, according to a Towers Watson analysis. As of May 31, 2011, just 30% offered a defined benefit plan to new salaried employees, the New York-based firm found.

At the same time, the percentage of Fortune 100 companies offering only a defined contribution plan, typically a 401(k) plan, has gone in the opposite direction. In 2004, just 27% of the group offered only a defined contribution plan to new salaried employees. As of May 31, 2011, that percentage had increased to 70%.

Benefits experts say several factors came together in the early part of this decade that triggered the employer drive to freeze their plans.

“It was a convergence of events that created the momentum for plan sponsors to want to get out,” said Alan Glickstein, a senior retirement consultant with Towers Watson in Dallas.

One of the biggest factors was the sharp decline in the equities market in 2002 that battered the funding status of pension plans.

%%BREAK%%

As recently as 2000, large employer plans were on average 122.7% funded, according to research by actuarial consultant Milliman Inc. Indeed, throughout much of the 1990s, plans were so well-funded amid robust investment results and high interest rates that many employers didn't have to contribute to their plans for years.

“There were many years when employers put zero into their plans,” said Jack Abraham, a principal with PricewaterhouseCoopers L.L.P. in Chicago.

But the funding status of pension plans plunged following the economic downturn in 2002. That year, the average funding level of big employer pension plans plummeted to just 82%, according to Milliman, forcing employers to pump money into their plans.

“Employers got slammed,” Mr. Glickstein said, noting that call for cash came amid other financial pressures on employers, including the downturn in the economy and ever-increasing competitive pressures.

That big cash call also coincided with years of growing employer doubts about whether the mainstream defined benefit pension plan design—final average pay plans, so named because benefits are based on years of service and the pay employees earn during their last, often five, years of service—still made sense in the face of an increasingly mobile workforce that didn't stay in one place long enough to earn a significant benefit.

Indeed, an October 2003 survey by then-Aon Consulting of more than 1,000 plan sponsors found that 20% of respondents either had or were considering freezing their pension plans.

Another powerful force propelling employers to freeze their pension plans was continuing controversy over what had been a rapidly growing defined benefit plan design—cash balance plans.

In cash balance plans, benefits accrue rapidly during employees' first years of service, making them more attractive to high-turnover workforces than final average pay plans, with their slower buildup of benefit values.

%%BREAK%%

In addition, the benefits are expressed, like highly popular 401(k) plans, as cash lump sums, making the benefit highly visible and appreciated by employees.

But by 2000 controversy began to dog the plans. Critics said their design discriminated again older employees. Numerous age discriminations suits were filed against plan sponsors. In the best known suit, filed against corporate titan IBM Corp., a U.S. District Court judge in Southern Illinois ruled in 2003 that the basic cash balance plan design ran afoul of age discrimination law.

Meanwhile, in Washington, the Internal Revenue Service declined to issue guidance that would have settled the controversy, while federal lawmakers also declined to clear up the age discrimination issue.

Eventually, five federal appeals courts rejected the age discrimination charges, and Congress in 2006 made clear that the design of the plans was not age discriminatory.

But by then, many employers had lost patience and had frozen their traditional defined benefit plans, typically enriching their 401(k) plans, rather than converting those final average plans to cash balance plans.

“A window of opportunity may have been lost,” Mercer's Mr. Noonan said.

Now today's cash balance plan sponsors, just like sponsors of traditional pension plans, are freezing the plans.

Indeed, in February, cash balance plan pioneer Bank of America Corp. disclosed that, effective June 30, it would freeze its plan and make additional contributions to its 401(k) plan.

Back in 1985, San Francisco-based Bank of America became the first employer to convert a final average pay plan to a cash balance plan. The big name recognition enjoyed by Bank of America and the widespread publicity about Bank of America's action helped to fuel corporate interest in the approach.

By contrast, when Bank of America disclosed the cash balance plan freeze earlier this year, such moves had become so widespread that the bank's action received minimal media coverage.