IDEAS home Printed from https://ideas.repec.org/p/crr/crrwps/wp2007-22.html
   My bibliography  Save this paper

Why Are Companies Freezing Their Pensions?

Author

Listed:
  • Alicia H. Munnell

    (Center for Retirment Research at Boston College)

  • Mauricio Soto

Abstract

Defined benefit plans in the private sector are on the decline. And the early 21st century produced an uptick in the pace of decline driven by the financially devastating impact of the ‘perfect storm’ of plummeting stock prices and low interest rates, legislation that will require underfunded plans to increase their contributions, and accounting changes that will force fluctuations in pension finance onto the earnings statement and will likely eliminate the smoothing available under current rules. Increased volatility is not acceptable to corporate managers and may, in large part, explain why large healthy companies have taken steps to end their defined benefit plans. In an attempt to identify factors that led specific companies to freeze their plans, this paper explores the relationship between the probability that a plan was frozen and characteristics of the plan, the firm, and the industry. The results imply that plans where credit balances are high relative to income, legacy costs are substantial and funding ratios are low have a higher probability of being frozen. That makes sense in that plans with these characteristics are likely to have the most impact on future earnings under the Financial Accounting Standards Board’s expected reporting requirements. It is reasonable to expect more plans with these characteristics to freeze in the future.

Suggested Citation

  • Alicia H. Munnell & Mauricio Soto, 2007. "Why Are Companies Freezing Their Pensions?," Working Papers, Center for Retirement Research at Boston College wp2007-22, Center for Retirement Research, revised Dec 2007.
  • Handle: RePEc:crr:crrwps:wp2007-22
    as

    Download full text from publisher

    File URL: http://crr.bc.edu/working-papers/why-are-companies-freezing-their-pensions/
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. James Poterba & Joshua Rauh & Steven Venti & David Wise, 2007. "Defined Contribution Plans, Defined Benefit Plans, and the Accumulation of Retirement Wealth," NBER Chapters,in: Public Policy and Retirement, Trans-Atlantic Public Economics Seminar (TAPES), pages 2062-2086 National Bureau of Economic Research, Inc.
    2. repec:eee:hapoch:v1_865 is not listed on IDEAS
    3. Ashby H.B. Monk, 2009. "Pension Buyouts: What Can We Learn From the UK Experience?," Issues in Brief ib2009-9-21, Center for Retirement Research, revised Oct 2009.
    4. Barbara A. Butrica & Howard M. Iams & Karen E. Smith & Eric J. Toder, 2009. "The Disappearing Defined Benefit Pension and its Potential Impact on the Retirement Incomes of Boomers," Working Papers, Center for Retirement Research at Boston College wp2009-2, Center for Retirement Research.
    5. Alicia H. Munnell & Jean-Pierre Aubry & Dan Muldoon, 2008. "The Financial Crisis and Private Defined Benefit Plans," Issues in Brief ib2008-8-18, Center for Retirement Research, revised Nov 2008.
    6. Kandice Kapinos, 2012. "Changes in Firm Pension Policy: Trends Away from Traditional Defined Benefit Plans," Journal of Labor Research, Springer, vol. 33(1), pages 91-103, March.
    7. Cathy Beaudoin & Nandini Chandar & Edward M. Werner, 2010. "Are potential effects of SFAS 158 associated with firms' decisions to freeze their defined benefit pension plans?," Review of Accounting and Finance, Emerald Group Publishing, vol. 9(4), pages 424-451, November.
    8. Ashby H. B. Monk, 2009. "Pension Buyouts: What Can We Learn From The UK Experience?," Working Papers, Center for Retirement Research at Boston College wp2009-19, Center for Retirement Research, revised Sep 2009.
    9. repec:mes:challe:v:59:y:2016:i:2:p:126-147 is not listed on IDEAS

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:crr:crrwps:wp2007-22. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Grzybowski) or (Christopher F Baum). General contact details of provider: http://edirc.repec.org/data/crrbcus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.