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Falling Through the Ice On DB

Freezing a pension plan doesn't eliminate the financial risks

By Staff Writer | Updated on January 02, 2006

In the latest piece of bad news regarding traditional pen- sion plans, Verizon Communications Inc., the $71.2 billion phone company, announced that it is freezing its defined benefit (DB) pension plan for 50,000 management employees. Verizon is just the latest in a line of U.S. companies backing away from DB plans. According to a Watson Wyatt study, 11% of Fortune 1,000 companies with DB plans had frozen or terminated their plans in 2004, up from 7% in 2003. The trend reflects in large part the financial market swings that left many plans severely underfunded, wreaking havoc on corporate bottom lines. Companies may see freezing the plan as a way out of the maelstrom, but benefits consultants warn that it solves only part of the problem: While freezing a DB plan reduces costs, it has little immediate effect on the financial risks associated with the plan.

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