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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
Approximately 3.3 million active participants in single-employer defined benefit (DB) plans, representing 21 percent of the total, are currently affected by plan freezes, according to a recent study by the U.S. Government Accountability Office (GAO).
Plan freezes, amendments to plans which limit at least some future pension accruals for at least some plan participants, have implications for the long-term financial position of the Pension Benefit Guaranty Corporation’s (PBGC) pension insurance program, the GAO observed. Such freezes frequently precede plan terminations. The GAO therefore conducted a study of a representative group of plans to examine the extent to which current defined benefit plans are frozen, and to assess the implications of these freezes for the PBGC and for plan participants and sponsors.
Half of all plan sponsors studied were found to have one or more frozen DB plans. Most of these plans were in a “hard freeze,” in which all future benefit accruals cease. However, only 9 percent of larger sponsors, those with 10,000 or more participants, had implemented a hard freeze, whereas 25 percent of smaller sponsors had done so. In explaining their reasons for freezing plans, the plan sponsors most often cited the impact of annual contributions on their firm’s cash flows and the unpredictability of plan funding. Where a sponsor’s largest plan was frozen, the sponsor was likely to anticipate plan termination as the probable plan outcome.
The implications of a freeze were found to vary:
- For plan sponsors, even though hard freezes would appear to indicate an increased likelihood of plan termination, the study found that a rise in plan terminations has yet to materialize.
- For participants, while a freeze generally implies a reduction in anticipated future retirement benefits, the study indicated that this reduction may be somewhat offset by increases in replacement savings plans, such as defined contribution (DC) plans. The vast majority of sponsors with frozen plans studied (83 percent) had alternative retirement savings arrangements in place for participants affected by the freeze, it was noted. Of course, the shift to DC plans also means a shift of investment risk and responsibility for saving to employees.
- For the PBGC, plan freezes may potentially improve the PBGC’s net financial position, the study indicated, but the extent to which freezes were accompanied by sponsor efforts to improve plan funding was unclear. In any event, the GAO expects the shrinkage of the single-employer pension insurance program plan base to continue.
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