Tuesday, March 21, 2006

Pension Freezes: EBRI Research Shows Who’s Affected and by How Much

The Employee Benefit Research Institute (EBRI) has published a new analysis that quantifies how workers are likely to be affected by pension freezes, and how much they would have to save in a 401(k)--whether provided by their employer and/or saved by themselves--to offset the loss of accrued benefits from the pension freeze. According to Defined Benefit Plan Freezes: Who's Affected, How Much, and Replacing Lost Accurals, in the March 2006 EBRI Issue Brief No. 921, how an individual worker might be affected by a pension freeze varies widely, based on the terms and natuyre of each plan, but the data “illustrate the general impact of age and tenure: Older, longer-tenure workers tend to be affected by a pension freeze more than younger workers because they do not have as much time left in their working careers in a 401(k) plan to offset the accrual loss from a pension freeze.”

Generally, the report finds that:
  • Workers in career-average pension plans would have to save a median amount of about 7% of their annual salary to replace the lost accrual benefits from a pension freeze;<
  • Workers in final-average pension plans would have to save a median amount of about
    8% percent of their annual salary;
  • Workers in cash balance plans would have to save about 3% percent of their annual
    salary.
An Executive Summary of the report is also available.

Source: Press Release Employee Benefit Research Institute (March 8, 2006)

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