Pension Freeze: When You're Left Out in the Cold

More companies are opting to halt pension activity.

When some of the country's biggest employers and industry trade associations pleaded with Congress for temporary funding relief, several key unions and employee groups supported their request, hoping it would prevent companies from freezing their pension plans. (A pension freeze means employees keep the retirement benefits they have already earned but do not accrue any further benefits. That minimizes employers' future costs, but it doesn't relieve them from having to make up current shortfalls in the plan's funding.) But pension freezes seem to be picking up steam since last year's stock-market meltdown.

More than a dozen major corporations, from telecommunications giant Motorola to publishing icon Random House, have announced pension freezes effective this year. Because a freeze reduces future retirement benefits for employees, companies often introduce a new 401(k) plan or enhance their existing plan by boosting employer contributions.

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Mary Beth Franklin
Former Senior Editor, Kiplinger's Personal Finance