Options vary for employers freezing plans

Employers are taking a variety of approaches when they freeze their pension plans.

Some pension plan freezes are structured so that current and new employees earn all future retirement benefits through an enhanced 401(k) or other defined contribution plan.

Experts say complete freezes help eliminate confusion and the notion of unfairness among employees, which can occur when companies impose freezes only on new employees.

In that situation, current employees continue to earn benefits under their defined benefit plans and new employees are offered beefed-up 401(k) plans.

"The pro, of course, is that current employees do not get (future) benefits cut," said Larry Sher, director of retirement policy for New York-based Buck Consultants L.L.C. "The problem is that it creates two classes of workers."

Mr. Sher said a similar problem arises when companies continue to offer a defined benefit plan to employees whose combined age and service equals a certain figure, while shifting younger, shorter-service employees, as well as new employees, into enriched defined contribution plans.

Another option popular among companies is offering current employees a one-time choice: continue to earn benefits under the defined benefit plan or move over to the beefed-up 401(k) plan. Also under this design option, new employees are offered only an enriched defined contribution plan.

Mr. Sher and other experts say the problem with this structure is that employees may not know which choice best meets their needs.

Overall, confusion and the lack of financial education are some of the reasons many experts believe pension freezes have not gotten much attention from employees.

Jack Abraham, a principal and national leader of the retirement practice at PricewaterhouseCoopers L.L.P. in Chicago, said many companies haven't offered employees enough education along with the newly designed retirement plans.

The freezes "are a way for (companies) to reduce costs without people noticing how much it's going to cost them," Mr. Abraham said.