WASHINGTON — Older, longer-tenure workers feel the effects of a frozen defined benefit pension plan more than younger workers, a new study shows.
That's because they have less time remaining on the clock to offset accrual losses through contributions to a defined contribution plan, according to the study by the Employee Benefit Research Institute that examines employee demographics.
A defined benefit plan sponsor may choose to implement a "hard freeze" of its plan, under which benefits would cease accruing completely for any plan participants, or a "soft freeze," which generally limits benefit increases for current participants. A sponsor may also employ a partial freeze, in which the plan would be frozen for only some participants. The EBRI study looked at workers covered by frozen pension plans who are shifted to 401(k)-style defined contribution plans.
Jack VanDerhei, the study's author and a fellow with Washington-based EBRI, said in an interview that "it was useful to quantify how much, on average, employees were losing" by shifting to defined contribution plans from frozen defined benefit plans.
While it's clear that a frozen pension plan will leave many employees at a financial disadvantage, the final numbers "ended up surprising a lot of people," Mr. VanDerhei said. He noted many people involved with the study were taken aback by "just how high" some of the 401(k) contribution rates would be to offset lost benefit accruals in frozen pension plans.