The rate at which companies froze or terminated their defined benefit pension plans accelerated sharply last year, an analysis by Watson Wyatt Worldwide shows.
And not just financially troubled companies are going that route. Julia Coronado, Watson Wyatt's senior research analyst, said one "troubling" aspect of the analysis showed healthy companies are terminating or freezing their traditional pension plans in favor of less expensive defined contribution plans.
Among Fortune 1000 companies, 116 companies terminated or froze their defined benefit plans since 2001 — 72 of them in the last two years, according to a Watson Wyatt analysis of the firm's database.
Among the Fortune 1000 companies that sponsor defined benefit plans, 44 of 627 terminated or froze plans in 2004, a sizable leap from the 28 of 633 that did so in 2003.
In fact, last year marked the only instance since 2001 that more than 28 Fortune 1000 companies froze or terminated pension plans during a given year. Meanwhile, the percentage of companies in the Fortune 1000 that sponsor defined benefit plans has held steady between roughly 63% and 64% during those four years, according to Watson Wyatt data.
Additionally, from 2001 through 2004, about half the companies that finish a year with frozen or terminated plans have historically dropped off the Fortune 1000 list the following year, according to the firm's analysis, which indicates the decision may often be closely tied to weak financial performance. While the analysis doesn't indicate how many have dropped off the list so far in 2005, 18 companies that froze or terminated plans in 2003 fell off the list in 2004.