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Participants and May Pose Retirement Income Challenges' which was 
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Report to Congressional Addressees: 

United States Government Accountability Office: 
GAO: 

July 2008: 

Defined Benefit Pensions: 

Plan Freezes Affect Millions of Participants and May Pose Retirement 
Income Challenges: 

GAO-08-817: 

GAO Highlights: 

Highlights of GAO-08-817, a report to congressional addressees. 

Why GAO Did This Study: 

Private defined benefit (DB) pension plans are an important source of 
retirement income for millions of Americans. However, from 1990 to 
2006, plan sponsors have voluntarily terminated over 61,000 
sufficiently funded single-employer DB plans. An event preceding at 
least some of these terminations was a so-called plan “freeze”—an 
amendment to the plan to limit some or all future pension accruals for 
some or all plan participants. Available information that the 
government collects about frozen plans is limited in scope and may not 
be recent. GAO conducted a stratified probability sample survey of 471 
single-employer DB plan sponsors out of a population of 7,804 (with 100 
or more total plan participants) to gather more timely and detailed 
information about frozen plans. We have prepared this report under the 
Comptroller General’s authority as part of our ongoing reassessment of 
risks associated with the Pension Benefit Guaranty Corporation’s (PBGC) 
single-employer pension insurance program, which, in 2003, we placed on 
our high-risk list of programs that need broad-based transformations 
and warrant the attention of Congress and the executive branch. Frozen 
DB plans have possible implications for PBGC’s long-term financial 
position. This report examines (1) the extent to which DB pension plans 
are frozen and the characteristics of frozen plans; and (2) the 
implications of these freezes for plan participants, plan sponsors, and 
the PBGC. 

What GAO Found: 

Frozen plans are fairly common today, with about half of all sponsors 
in our study population having one or more frozen DB plans. Overall, 
about 3.3 million active participants in our study population, who 
represent about 21 percent of all active participants in the single-
employer DB system, are affected by a freeze. The most common type of 
freeze is a hard freeze—a freeze in which all future benefit accruals 
cease—which accounts for 23 percent of plans in our study population; 
however, an additional 22 percent of plans are frozen in some other 
way. Larger sponsors (i.e. those with 10,000 or more total 
participants) are significantly less likely than smaller sponsors to 
have implemented a hard freeze, with only 9 percent of plans under a 
hard freeze among larger sponsors compared with 25 percent of plans 
under a hard freeze among smaller sponsors. The vast majority of 
sponsors with frozen plans in our study population, 83 percent, have 
alternative retirement savings arrangements for these affected 
participants, but 11 percent of sponsors do not. (An additional 6 
percent of sponsors froze plans under circumstances that preclude a 
replacement plan.) Plan sponsors cited many reasons for freezing their 
largest plans but most often noted two: the impact of annual 
contributions on their firm’s cash flows and the unpredictability of 
plan funding. Sponsors of frozen plans generally expressed a degree of 
uncertainty about the anticipated outcome for their largest plan, but 
sponsors whose largest plan was hard frozen were significantly more 
likely to anticipate plan termination as the likely plan outcome. 

The implications of a freeze vary for sponsors, participants, and PBGC. 
For plan sponsors, while hard freezes appear to indicate an increased 
likelihood of plan termination, a rise in plan terminations has yet to 
materialize. For participants, a freeze generally implies a reduction 
in anticipated future retirement benefits, though this may be somewhat 
or entirely offset by increases in other benefits or a replacement 
retirement-savings plan. However, because the replacement plans offered 
to affected participants most frequently are defined contribution, the 
investment risk and responsibility for saving are shifted to employees. 
Finally, plan freezes may potentially improve PBGC’s net financial 
position, but the degree to which it is accompanied by sponsor efforts 
to improve plan funding is unclear. In any event, the shrinking of the 
single-employer pension insurance program plan base seems likely to 
continue. 

Figure: Estimated Number of Active Participants Affected by Sponsors’ 
Largest Plan Freeze, by Freeze Type: 

[See PDF for image] 

This figure is a vertical bar graph depicting the following data: 

Estimated Number of Active Participants Affected by Sponsors’ Largest 
Plan Freeze, by Freeze Type: 
Hard Freeze: 1.7 million; 
Soft, partial, other freeze: 1.6 million. 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans. 

[End of figure] 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-817]. To view the 
survey results click on [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-818SP]. For more information, contact Barbara 
Bovbjerg, at (202) 512-7215 or bovbjergb@gao.gov. 

[End of section] 

Contents: 

Letter: 

Reporting Objectives: 

Scope and Methodology: 

Frozen Plans Affect About One-Fifth of Active DB Plan Participants: 

Plan Freezes Have Various Implications for Key Stakeholders: 

Concluding Observations: 

Agency Comments: 

Appendix I: Frozen DB Plan Briefing Slides: 

Appendix II: Scope and Methodology: 

Appendix III: Agency Comments: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Summary of Key Survey Sample Characteristics: 

Table 2: Summary of Study Population by Sampling Stratum: 

Table 3: Summary of Content Analysis, by General Category of Comment: 

Abbreviations: 

CB: collective bargaining: 

CUSIP: Committee on Uniform Securities Identification Procedures: 

DB: defined benefit: 

DC: defined contribution: 

EIN: employee identification number: 

PBGC: Pension Benefit Guaranty Corporation: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

July 21, 2008: 

Congressional Addressees: 

The number of private defined-benefit (DB) plans, an important source 
of retirement income for millions of Americans, has declined 
substantially over the past two decades.[Footnote 1] For example, plan 
sponsors voluntarily terminated over 61,000 sufficiently funded single- 
employer DB plans from 1990 to 2006.[Footnote 2] An event preceding at 
least some of these terminations was a so-called plan "freeze"--an 
amendment to the plan to limit some or all future pension accruals for 
some or all plan participants. Over the last five years, a number of 
large, high profile employers have announced their intention to freeze 
one or more of their DB plans. These larger plans represent a 
significant portion of plan liabilities and participants in the private 
DB pension system. 

In 2003, when asked to determine the number of frozen DB plans, we 
reported that reliable and timely data on DB plan freezes were not 
generally available.[Footnote 3] Since that report, additional studies 
have been published, including two from the Pension Benefit Guaranty 
Corporation (PBGC), the federal corporation that insures private DB 
pension plans.[Footnote 4] PBGC's studies analyze plan freezes using 
information submitted by DB pension plan sponsors on the Form 5500 
Annual Return/Report of Employee Benefit Plan.[Footnote 5] However, the 
data from the Form 5500, the primary source of information on DB plans, 
are limited to so-called "hard freezes." Under a hard freeze, all 
current employees who participate in the plan receive no additional 
benefit accruals after the effective date of the freeze, and employees 
hired after the freeze are ineligible to participate in the plan. The 
Form 5500 information on freezes does not include so-called "soft- 
freezes," which limit future benefit accruals based on a component of 
the benefit accrual formula (that is, the service or salary component). 
According to the most recent PBGC study, 14 percent of the single- 
employer plans it insures were hard frozen at the end of 2005, a 48 
percent increase since 2003. The PBGC study also found that plans with 
100 or fewer participants were generally more likely to be frozen than 
larger plans. 

In addition to the informational limitations of the Form 5500, we have 
also noted that its data are not always available on a timely basis. 
For example, the Form 5500's most recently available and complete 
information on plan freezes is for calendar year 2005 and thus does not 
include recent plan freezes. Given these concerns and broader concerns 
about the implications of plan freezes for the retirement security of 
plan participants, GAO initiated a survey of frozen DB plans under the 
authority of the Comptroller General of the United States as part of 
our ongoing reassessment of risks associated with the PBGC's single- 
employer pension insurance program. In 2003, we placed this program on 
our high-risk list of programs that need broad-based transformations 
and warrant the attention of Congress and the executive branch. Frozen 
DB plans have possible implications for PBGC's long-term financial 
position. 

Reporting Objectives: 

To better understand the current plan-freeze environment and its 
significance to the DB system going forward, we address the following 
questions: 

1. To what extent are DB pension plans frozen, and what are the 
characteristics of such freezes? 

2. What are the implications of such freezes for plan sponsors, 
participants, and the PBGC? 

Scope and Methodology: 

To determine the extent and characteristics among plans that are 
currently frozen, we collected and analyzed original survey data. We 
also analyzed and reviewed recent studies of frozen DB plans, notably 
PBGC's studies of hard frozen DB plans. Appendix I contains revised 
slides that update the preliminary briefing information that we 
provided to interested congressional staffs and members, as well as 
officials from the Department of Labor, PBGC, and the Department of the 
Treasury from late-April to June 2008. 

We conducted our work from April 2006 to July 2008, in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform our work to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our research objectives. We believe that the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our objectives. 

To achieve our survey objectives, we surveyed a stratified probability 
sample of 471 DB pension sponsors from PBGC's 2004 Form 5500 Research 
Database. We limited our study population to 7,804 sponsors that had 
100 or more total participants in sponsored plans, and our survey 
population results represent estimates for all sponsors with this 
characteristic. While they are a minority of sponsors (about 34 
percent), sponsors whose plans have more than 100 participants 
represent about 99 percent of all DB plan participants in the single- 
employer DB system. Further, sponsors with more than 100 participants 
in participating plans also represent 99.1 percent of the total 
liabilities among single-employer plans. To deploy the survey, we 
mailed a questionnaire to DB pension plan sponsors in the three 
smallest strata we identified. In addition, as part of a longer 
questionnaire, we collected similar information via a web survey about 
plan freezes from the very largest strata of plan sponsors. The survey 
results can be reviewed in [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-818SP]. See appendix II for a more detailed 
discussion about our survey methodology. 

Frozen Plans Affect about One-Fifth of Active DB Plan Participants: 

Overall, an estimated 3.3 million active participants[Footnote 6] in 
our study population--or 21 percent of all active participants in the 
private, single-employer DB system--are affected by reported freezes. 
(See app. I, slide 9 and slide 10.) Active participants are employees 
that are or may become eligible to accrue or receive additional 
benefits under a plan; if all participants in the DB system (that is, 
active participants, retirees, and separated vested participants) are 
considered, the proportion represented by active participants who are 
affected by plan freezes falls to 10 percent.[Footnote 7] (See app. I, 
Slide 9.) We considered only those participants who are currently 
accruing benefits (that is, active participants) at the time of freeze 
implementation to be affected by a freeze. The above calculations, 
therefore, do not include sponsors whose largest frozen plans are under 
a new-employee-only soft freeze, where the plan is closed to new 
entrants and benefit accruals for active participants remain unchanged. 
The extent to which active participants are affected by a freeze 
depends on the type of freeze in place. Under hard freezes, future 
benefit accruals cease for active participants. In contrast, soft 
freezes may reduce future benefit accruals for some or all active 
participants. Soft freezes are distinct from hard freezes in that the 
restrictions on participants' future benefit accruals are less 
comprehensive than the total cessation of future accruals under hard 
freezes.[Footnote 8] 

Our survey shows that about half the sponsors in the study population 
have one or more frozen plans. (See app. I, slide 11.) Overall, about 
51 percent of plans in the study population were reported as closed to 
new entrants, the basic requirement of a plan freeze. Nearly half of 
plans with a reported freeze, or 23 percent of all plans in the study 
population, were under a hard freeze. (See app. I, slide 12.)[Footnote 
9] In addition, 12 percent reported some type of soft freeze. About 6 
percent reported a partial plan freeze, while 4 percent reported an 
"other" freeze, which include situations where plan participants are 
separated into plan tiers,[Footnote 10] or freezes brought on by 
bankruptcy, plant closure, or plan merger. 

The survey results suggest that two factors may influence the 
likelihood that sponsors will implement a hard freeze: sponsor size and 
the extent to which a sponsor's plans are subject to collective 
bargaining (CB) agreements. Larger sponsors, those with 10,000 or more 
total participants, are significantly less likely than smaller sponsors 
to have implemented a hard freeze, with only 9.4 percent of plans under 
a hard freeze among larger sponsors compared with 25.4 percent of plans 
under a hard freeze among smaller sponsors. (See app. I, slide 13.) 
Similarly, firms with some or all plans subject to CB are significantly 
less likely to implement hard freezes than sponsors with no plans 
subject to CB.[Footnote 11] (See app. I, Slide 14.) However, these two 
factors may be related, as larger sponsors in our survey are generally 
more likely to have one or more plans subject to CB than smaller 
sponsors.[Footnote 12] 

About half of the freezes of sponsors' largest frozen plans have 
occurred since 2005. (See app. I, slide 16.) This figure includes only 
plans that are currently frozen, and it does not represent a 
longitudinal dataset of all plan freezes. Any plans frozen during the 
same time period and terminated prior to GAO's survey are not included. 
However, PBGC data shows us that there has been a recent decline in the 
number of plan terminations among plans with 100 or more participants. 
The number of standard terminations declined by two-thirds from 2001 to 
2002 through 2005 to 2006, a period during which there was a 
significant increase in the number of current plan freezes. This may 
suggest possible growth in the number of frozen plans currently in the 
single-employer DB system. 

Of sponsors in the study population with one or more frozen plans, 83 
percent offered a replacement retirement savings vehicle to affected 
participants in their largest frozen plans. (See app. I, slide 18.) 
Eleven percent of sponsors did not offer any replacement plan to 
affected participants; however, this figure includes any sponsors who 
allowed affected participants to join or increase employee 
contributions to an existing but unchanged plan.[Footnote 13] An 
additional 6 percent of sponsors froze plans under extenuating 
circumstances that preclude the offering of a replacement plan (such 
as, a firm merger, bankruptcy, plant closure, multiple employer plan, 
or new-employee-only soft freeze). Of those sponsors offering 
replacement plans, over 80 percent offered enhanced existing or new DC 
plans. (See app. I, slide 19.) About 5 percent of sponsors offered a 
new DB plan to affected participants. 

Sponsors of frozen plans cited a number of reasons why they froze their 
largest plan. "Annual contributions needed to satisfy funding 
requirements and their impact on cash flows" was cited most often, with 
72 percent of sponsors responding that this was a reason for freezing 
their largest frozen plans; "unpredictability/volatility of plan 
funding requirements" followed with 69 percent.[Footnote 14] (See app. 
I, slide 21.) The remaining 13 reasons range in prevalence from 54 
percent responding that "plan was frozen in anticipation of replacing 
it with an alternative retirement plan" to 12 percent for "other 
reason."[Footnote 15] 

About two-thirds of sponsors with frozen plans reported at least some 
level of confidence that their largest frozen plan was reasonably well- 
funded at the time of freeze. (See app. I, slide 22.) Further, 58 
percent of sponsors were highly or moderately confident that their 
largest frozen plans could have undergone standard, fully-funded 
terminations instead of freezing. This is compared with 30 percent of 
sponsors who were not at all confident that their largest frozen plans 
could have undergone standard terminations. However, there are some 
limitations to these data. First, the survey asked about sponsor 
beliefs, not actual funding levels. Second, the data refer to when the 
freezes were implemented and may bear no relation to current funding 
levels. Third, the data only include each sponsor's largest frozen 
plan. Nevertheless, the data provide some insight into sponsors' state 
of mind when they chose to freeze their largest frozen plans. 

For sponsors with plans that are already frozen, fewer than half 
reported having a firm idea of the anticipated outcome for their 
largest frozen plans. Among these sponsors, a very small number 
anticipate "thawing," or unfreezing, their plan, and about one-third 
said they will eventually terminate their largest frozen plans. (See 
app. I, slide 24.) In contrast, nearly half say they will keep the plan 
frozen indefinitely. Another 14 percent report that it is too early to 
make a decision or that they are uncertain what the outcome will be. 
The anticipated outcome for a sponsor's largest plan varies 
significantly by the type of frozen plan. Sponsors with frozen plans 
that were not under a hard freeze were significantly less likely to 
anticipate termination as the outcome for their largest frozen plan. 
(See app. I, slide 25.)[Footnote 16] Among sponsors with one or more 
plans not currently frozen, only 10 percent have firmly decided to 
freeze, or not freeze, any plans in the future. (See app. I, slide 26.) 
Thirty-five percent of sponsors have considered freezing additional 
plans in the future but are uncertain if they will, while nearly 50 
percent have not yet considered or discussed future freezes. 

Plan Freezes Have Various Implications for Key Stakeholders: 

The prevalence of frozen DB plans today has different implications for 
key stakeholders in the single-employer DB system--plan sponsors, 
participants, and the PBGC. 

Our survey found that nearly a third of the sponsors ultimately expect 
to terminate their largest frozen plan. Further, we found that about 
half of all frozen plans were hard frozen and that sponsors of hard 
frozen plans appear more likely to anticipate termination as an 
eventual outcome. However, the number of plan terminations has not 
increased recently. For example, from 1990 to 2006, total annual 
standard terminations averaged about 7 percent of insured single- 
employer plans. However, from 2002 to 2006, this rate had been far 
lower. (See app. I, slide 28.) Further, larger plans, or those plans 
with 100 or more participants, which account for about 36 percent of 
plans but which account for the overwhelming number of the system's 
active participants, accounted for only about 9 percent of the 
terminations during the 2002 to 2006 period. This suggests that the 
single-employer DB system's decline does not appear to be accelerating, 
with many large plans continuing in operation. 

Plans may freeze for many reasons, and our survey population of frozen 
plan sponsors cited cost of contributions and volatility of plan 
funding as the key reasons for freezing their largest plans. However, 
when we asked all sponsors, including those with no frozen plans, about 
the key challenges to the future health of the single-employer DB 
system generally, the very same issues of plan cost and volatility were 
listed most frequently. Given that these issues seem to be an inherent 
problem for all sponsors, it may be that each sponsor decision to 
freeze a plan has a firm-specific reason or is based on other factors 
not picked up in our survey. In any case, the current prevalence of 
plan freezes does not present an encouraging landscape for DB plan 
sponsorship. 

For active plan participants, plan freezes imply a possible reduction 
in anticipated retirement income. In particular, a hard freeze, which 
ceases future benefit accruals, is especially likely to reduce 
anticipated retirement income--unless this income is made up through 
increased savings, possibly from such sources as higher wages or other 
nonwage benefit increases. Although a majority of the sponsors with 
frozen plans cited plan cost considerations as a key motivation for the 
freeze--suggesting that they may be somewhat reluctant to fully 
redirect any potential cost savings from the freeze to other areas of 
compensation or benefits--our survey did not collect information to 
fully address this issue. For example, while our survey indicated that 
sponsors most often do offer a replacement plan for frozen participants 
and this offering is most often a DC or 401(k)-type plan, we did not 
ask about the generosity of these replacement plans or of the previous 
frozen DB plan. 

The offering of an alternative plan may have different consequences for 
employees in different stages of their career. Reductions to 
anticipated accruals for participants affected by a freeze will vary 
considerably depending on key plan features, participant demographic 
characteristics, and market interest rate factors.[Footnote 17] 
However, for those participants with traditional pension plan formulas 
[Footnote 18] that are hard frozen and replaced with a typical DC, or 
401(k)-type plan, all else being equal, longer-tenured, midcareer 
workers are most likely to see the greatest reductions in anticipated 
retirement income. This effect occurs because older, longer-tenured 
employees generally have less time remaining in their careers to offset 
anticipated accrual losses through typical 401(k)-type plan 
contributions compared to younger workers. Alternatively, depending on 
the generosity of the frozen, pay-based pension plan, certain younger 
(or less well-tenured) and more mobile participants might actually see 
increases in their anticipated retirement incomes by moving to a 
typical, or average, 401(k)-type plan. 

These concerns are not just relevant for the current active 
participants of a frozen plan. Our survey also shows that roughly a 
majority of sponsors in our study population have closed their plans to 
new employees, many of whom will also likely depend on a DC plan as a 
source of retirement income. Our survey did not collect information on 
the degree to which affected employees are participating in either the 
newly offered DC plans or any existing, but enhanced, DC plan. DC plans 
are increasingly the dominant retirement savings vehicle for private 
sector workers. Like DB plans, DC plans pose their own potential 
retirement-income challenges, including the need for employees to 
participate in the plan and to effectively manage the investment risk 
of their DC accounts if they are to have a secure retirement. Yet for 
some workers, especially for lower-income workers, this may be 
difficult to do as they are less likely to participate when offered the 
opportunity to do so and less able to make even limited contributions. 
[Footnote 19] 

The effect of plan freezes on PBGC's net financial position is not 
certain, but it could be modestly positive in both the immediate-and 
long-term; freezes generally reduce system liabilities and potentially 
minimize claims among financially weak plans.[Footnote 20] The possible 
improvement in PBGC's net position, however, assumes that the aggregate 
effect of plan freezes does not significantly reduce the agency's 
premium income over time.[Footnote 21] The reductions in flat-rate 
premium[Footnote 22] income could come from a decline in participants, 
possibly from the considerable number of plans that we found that were 
closed to new employees or from terminations that may result from the 
freeze. Variable-rate premium income[Footnote 23] could also be reduced 
to the degree that sponsors of underfunded plans improve funding as a 
result of a plan freeze. 

PBGC's financial status is influenced not only by the number of freezes 
and terminations but also by the relative health and size of the plans 
and sponsors that decide to terminate. For example, PBGC finds that 
hard frozen plans are more likely to be underfunded and to terminate, 
which may highlight two other trends. Plan sponsors that initiate a 
standard termination must have sufficient assets in the plan to pay 
participants their accrued benefits and are unlikely to represent the 
very same plan sponsors that are also underfunded. If relatively well- 
funded and financially healthy sponsors are the ones who terminate 
their frozen plans, it may leave the underfunded, and potentially 
financially distressed, frozen plan sponsors under PBGC's insurance 
responsibility. Alternatively, data from PBGC shows that relatively 
large plans terminate at a much lower rate than smaller plans. This is 
possibly encouraging for PBGC's financial status, to the degree that 
these larger plans do not result in claims, because these plans 
represent the bulk of liabilities and participants. 

Ultimately, no matter what the impact on its net financial position, 
the freezing of plans and the exiting from the single-employer DB 
system by sponsors do not indicate future plan growth for the PBGC. One 
part of its mission is to foster the continuation and maintenance of 
private-sector pension plans. PBGC's single-employer insurance program 
currently covers 28,800 plans, which is 65 percent fewer plans than it 
covered 15 years ago. Given the prevalence of plans that are currently 
frozen and the relationship between plan freezes and plan termination, 
the shrinking of the single-employer insurance program plan base seems 
likely to continue. 

Concluding Observations: 

The private DB pension system, a key source of retirement income for 
millions of Americans, continues to experience a slow decline. Plan 
freezes are a common phenomenon, affect a large number of participants, 
and have important implications for plan sponsors, participants, and 
the PBGC. While plan freezes are not as irrevocable as plan 
terminations, they are indicative of the system's continued erosion. 
Yet freezes are just one of the many developments now affecting the DB 
system. The broad ranging Pension Protection Act of 2006, changes in 
accounting rules, rising retiree health care costs and health care 
costs generally, a weak economy, and falling interest rates all 
represent challenges that DB plan sponsors may need to confront. How 
key stakeholders, plan sponsors, participants, the PBGC, other 
government agencies, and congressional policymakers respond to all of 
these challenges will shape the fortunes of the DB system and its 
future role in providing retirement security to American workers. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Department of Labor, the 
Department of the Treasury, and PBGC. The PBGC provided written 
comments, which appear in appendix III. PBGC generally agreed with the 
findings and conclusions of the report. However, PBGC did express some 
concerns about our survey methodology--especially with respect to the 
comparability of our estimates of hard frozen plans and affected active 
participants with their estimates, which are based on the Form 5500 
filings for plan year 2006 received to date. PBGC notes that 
differences in results may be due to a variety of reasons, including 
that our survey data are more recent than the 2006 Form 5500 and the 
potential for some reporting errors on the Form 5500. Other 
explanations include the potential for response bias in the GAO survey, 
our use of a size variable that is sponsor-based rather than plan-based 
and the GAO survey's omission of newly formed pension plans since 2004. 

We addressed many of PBGC's specific methodological concerns by 
providing additional information to our technical appendix. We note 
that the very different methodologies used by PBGC and GAO in 
estimating the number of hard plan freezes and the number of active 
participants affected by such freezes suggest that the studies' results 
should be compared with extreme caution. We do note that our survey 
questionnaire was pre-tested extensively. Further, regarding the issue 
of response bias, we considered this as we analyzed our survey's 
results. We do not believe response bias is a significant issue because 
we did not find significant differences when we analyzed a comparison 
of key characteristics of the survey respondents to all sponsors in the 
study population. We also did not include newly-formed DB plans other 
than those formed by survey respondents because such data were not 
available, and, in our view, would not have a significant effect on our 
estimates. 

PBGC identified a number of explicit areas of agreement with our 
report. They noted that our finding with respect to the differences in 
prevalence of freezes between large and small plans is generally 
consistent with their estimates. They also mentioned that our report 
was consistent with their views on the effect that freezes may have on 
the future health of the DB system, the PBGC itself, as well as the 
impact of freezes on retirement incomes. Further, despite PBGC's 
concerns about the magnitude of certain estimates in our report, they 
generally found the relative estimates of alternative definitions of 
plan freezes to be new and important information. Lastly, PBGC noted 
that the comparison of our survey estimates to Form 5500 estimates 
highlights the delay that PBGC faces getting basic plan data. PBGC 
expects that plan data will become timelier in the near future, but 
some delay will still remain that may hinder PBGC's awareness of 
changing trends among plans that it insures. 

The Department of Labor and Treasury provided technical comments, which 
we incorporated as appropriate. 

We are sending copies of this report to the Secretary of Labor, the 
Secretary of the Treasury, and the Director of the PBGC, appropriate 
congressional committees, and other interested parties. We will also 
make copies available to others on request. In addition, the report 
will be available at no charge on GAO's Web site at [hyperlink, 
http://www.gao.gov]. 

If you have any questions concerning this report, please contact me at 
(202) 512-7215 or bovbjergb@gao.gov. Contact points for our Office of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made contributions are listed in 
appendix V. 

Signed by: 

Barbara D. Bovbjerg: 
Director, Education, Workforce, and Income Security Issues: 

List of Addressees: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Chuck Grassley: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Herb Kohl: 
Chairman: 
The Honorable Gordon Smith: 
Ranking Member: 
Special Committee on Aging: 
United States Senate: 

The Honorable George Miller: 
Chairman: 
The Honorable Buck McKeon: 
Ranking Member: 
Committee on Education and Labor: 
House of Representatives: 

The Honorable Charles B. Rangel: 
Chairman: 
The Honorable Jim McCrery: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

The Honorable Earl Pomeroy: 
Member: 

[End of section] 

Appendix I: Frozen DB Plan Briefing Slides: 

Defined Benefit Pensions: Plan Freezes Affect Millions of Participants 
and May Pose Retirement Income Challenges: 

July 2008: 

Survey Objective: 

* Assess the extent to which private, defined benefit (DB) plan 
sponsors are “freezing” (closing the plan and/or reducing future 
accruals in some manner) their plans; 
– Results part of a broader survey focusing on how DB plan sponsors are 
responding to recent developments affecting the DB pension system. 

GAO Freeze Survey: 

* A statistically representative, stratified survey of sponsors of 
private, single-employer DB plans with 100 or more total participants 
in all sponsored plans. 

* Survey administered via mail for smaller sponsors, and by web for 
certain larger sponsors (as part of a larger survey). 

* Of the original 471 sponsors in sample, 469 were deemed ‘in scope.’ 
330 in-scope sponsors responded, resulting in a 70 percent raw response 
rate (or 78 percent weighted response rate). 

* Our study population represents all sponsors of single-employer plans 
with 100 or more total participants, which account for 7,804 sponsors 
and their 11,090 plans; 
– These sponsors represent 34 percent of all sponsors and 42 percent of 
plans, but 99 percent of participants and 99 percent of liabilities. 

GAO Freeze Survey: Sampling Summary: 

Total Participant Category of Sponsor: less than 100; 
Sponsors Sampled: 0; 
Number of Sponsors: 15,156; 
Percent of Sponsors: 66.0%; 
Number of Plans: 15,344; 
Percent of Plans: 58.0%; 
Number of Participants: 306,757; 
Percent of Participants: 1.0%; 
Liabilities (in billions): $13; 
Percent of Liabilities: 0.9%. 

Total Participant Category of Sponsor: 100-999; 
Sponsors Sampled: 126; 
Number of Sponsors: 5,010; 
Percent of Sponsors: 21.9%; 
Number of Plans: 5,801; 
Percent of Plans: 21.9%; 
Number of Participants: 1,730,589; 
Percent of Participants: 5.4%; 
Liabilities (in billions): $53; 
Percent of Liabilities: 3.5%. 

Total Participant Category of Sponsor: 1,000-4,999; 
Sponsors Sampled: 123; 
Number of Sponsors: 1,829; 
Percent of Sponsors: 8.0%; 
Number of Plans: 2,711; 
Percent of Plans: 10.3%; 
Number of Participants: 4,171,045; 
Percent of Participants: 13.0%; 
Liabilities (in billions): $138; 
Percent of Liabilities: 9.2%. 

Total Participant Category of Sponsor: 5,000-49,999; 
Sponsors Sampled: 117; 
Number of Sponsors: 858; 
Percent of Sponsors: 3.7%; 
Number of Plans: 1,978; 
Percent of Plans: 7.5%; 
Number of Participants: 12,442,522; 
Percent of Participants: 38.6%; 
Liabilities (in billions): $506; 
Percent of Liabilities: 33.8%. 

Total Participant Category of Sponsor: 50,000 - plus; 
Sponsors Sampled: 105; 
Number of Sponsors: 107; 
Percent of Sponsors: 0.5%; 
Number of Plans: 600; 
Percent of Plans: 2.3%; 
Number of Participants: 13,553,358; 
Percent of Participants: 42.1%; 
Liabilities (in billions): $786; 
Percent of Liabilities: 52.5%; 

Total Participant Category of Sponsor: Study Group Total; 
Sponsors Sampled: 471; 
Number of Sponsors: 7,804; 
Percent of Sponsors: 34.0%; 
Number of Plans: 11,090; 
Percent of Plans: 42.0%; 
Number of Participants: 31,897,514; 
Percent of Participants: 99.0%; 
Liabilities (in billions): $1,483; 
Percent of Liabilities: 99.1%. 

Source: GAO analysis of 2004 PBGC Form 5500 Research Data. 

Note: sampling columns represent sponsor, participants and liabilities 
as of 2004. 

[End of table] 

Background: What Is a Plan Freeze? 

* A plan freeze is a plan amendment that closes the plan to new 
entrants and may limit future benefit accruals for some or all active 
plan participants. 

* General types include: 
- Hard Freeze–the plan is closed to new entrants and participants no 
longer accrue additional benefits; 
- Soft Freeze–at a minimum the plan is closed to new entrants. The 
plan’s prospective benefit formula may or may not be changed in such a 
way as to limit future benefit accruals for participants; 
- Partial Freeze–the plan is closed to new entrants and, for only a 
subset of active participants, the plan’s prospective benefit formula 
is changed to limit or cease future benefit accruals. 

Background: Freeze Data: 

* Most reports of pre-2003 freezes were based on: 
– limited data obtained from restricted/proprietary client bases of 
consulting firms and; 
– survey questions on freezes that were often indirect or could be 
misconstrued. 

* The Pension Benefit Guaranty Corporation (PBGC) began analyzing 
generalizable information on single-employer, “hard frozen” plans in 
2005 (using plan year 2003 data). 

* Most recent PBGC data shows that:
– 14 percent of plans were hard frozen as of 2005; 
– There has been a nearly 50 percent increase in frozen plans since 
2003; 
– Hard freezes are generally more prevalent among smaller plans. 

Overview: Survey Findings: 

* Frozen plans are common--affecting roughly one-fifth of all active 
participants; 

* Most current freezes were recently implemented, with about half 
freezing between 2005 and the present; 

* Most sponsors offered some form of alternative retirement plan to 
affected participants; 

* Sponsors of frozen plans said cost (impact on cash flows) and funding 
volatility were key reasons in their decisions; 

* Sponsors of non-frozen plans are uncertain about future course of 
action; 

* Frozen plans have varied implications for key stakeholders. 

Finding: Plan Freezes Are a Common Occurrence: 

* About 3.3 million active participants (21 percent of all active 
participants in single employer DB plans) affected by a freeze: 
– 51 percent of all plan sponsors with 100 or more total participants 
had one or more frozen plans; 
– 44 percent of plans reported a specific freeze in some form; 
– 51 percent of plans do not allow eligible, new hires to enter or 
accrue benefits in the plan; 

* Hard freezes are the most common occurrence, accounting for about 
half of all frozen plans; 

* Larger sponsors are significantly less likely to have plans that are 
hard frozen; 

* Sponsors with only collectively bargained (CB) plans froze plans at 
about the same rate as the overall study population, but have a lower 
proportion of hard freezes; 

* About half of plan freezes (among sponsors’ largest frozen plans) 
were implemented after 2004. 

Note: The 95 percent confidence interval of the total participant 
estimate ranges from 2.25 to 4.34 million participants. 

Figure 1: Participants Affected by Freezes Comprise a Significant 
Number of All DB Plan Participants: 

[See PDF for image] 

This figure contains two pie-charts depicting the following data: 

Active participants affected by a freeze among all single-employer 
participants: 
Total participants (i.e. active, separated vested, and retired): 90%; 
Active participants affected by a freeze: 10%. 

Active participants affected by a freeze among all single-employer 
participants: 
Total active participants: 79%; 
Active participants affected by a freeze: 21%. 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans. 

N = 3,298,923 affected participants; 31,897,514 total participants; 
15,598,254 active participants. 

Note: Stratified survey results are weighted and represent the 
population of 'large' plan sponsors, or sponsors who had 100 or more 
participants in all plans reported in PBGCs2004 Form 5500 Research 
Database. 

[End of figure] 

Figure 2: About 3.3 Million Participants Are Currently Affected by a 
Freeze: 

[See PDF for image] 

This figure is a vertical bar graph depicting the following data: 

Estimated Number of Active Participants Affected by Sponsors’ Largest 
Plan Freeze, by Freeze Type: 
Hard Freeze: 1.7 million; 
Soft, partial, other freeze: 1.6 million. 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans. 

N = 3,298,923 active participants. 

Note: The 95 percent confidence interval for participants affected by 
hard freeze is from 1.1 to 2.3 million. The 95 percent confidence 
interval for participants affected by soft, partial, or other freezes 
is from0.7 to 2.5 million. Stratified survey results are weighted and 
represent the population of 'large' plan sponsors, or sponsors who had 
100 or more participants in all plans reported in PBGC's 2004 Form 5500 
Research Database. 

[End of figure] 

Figure 3: Around Half of All Survey Sponsors Have at Least One Frozen 
Plan: 

[See PDF for image] 

This figure is a pie-chart depicting the following data: 

Sponsors with 1 or more frozen plans: 51%; 
Sponsors with no frozen plans: 49%. 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans. 

N = 7,804 sponsors. 

Note: Stratified survey results are weighted and represent the 
population of 'large' plan sponsors, or sponsors who had 100 or more 
participants in all plans reported in PBGC's 2004 Form 5500 Research 
Database. 

[End of figure] 

Figure 4: 53 Percent of All Plans in Study Population Are Frozen to 
Some Extent: 

[See PDF for image] 

This figure is a horizontal bar graph depicting the following data: 

Plan Freeze type: Plan not frozen; 
Percent of plans: 47.2%. 

Plan Freeze type: Hard freeze; 
Percent of plans: 23.3%. 

Plan Freeze type: Service-component-only soft freeze; 
Percent of plans: 1.8%. 

Plan Freeze type: Average-pay-only soft freeze; 
Percent of plans: 1.4%. 

Plan Freeze type: New-employee-only soft freeze; 
Percent of plans: 8.6%. 

Plan Freeze type: Plan closed to new entrants (undefined); 
Percent of plans: 8.8%. 

Plan Freeze type: Partial freeze; 
Percent of plans: 5.5%. 

Plan Freeze type: Other freezes; 
Percent of plans: 3.5%. 

N = 5,985 (frozen); 11,341 (total). 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans. 

Note: Stratified survey results are weighted and represent the 
population of 'large' plan sponsors, or sponsors who had 100 or more 
participants in all plans reported in PBGC's 2004 Form 5500 Research 
Database. 

[End of figure] 

Figure 5: Larger Sponsors are Significantly Less Likely to Have Hard 
Frozen Plans: 

[See PDF for image] 

This figure is a horizontal bar graph depicting the following data: 

Type of freeze: Hard freezes; 
Percent of plans, Small sponsors (100-9,999 participants): 25.4%. 
Percent of plans, Large sponsors (10,000+ participants): 9.4%. 

Type of freeze: Soft or other freezes; 
Percent of plans, Small sponsors (100-9,999 participants): 29.5%; 
Percent of plans, Large sponsors (10,000+ participants): 30.1%. 

Type of freeze: Not frozen; 
Percent of plans, Small sponsors (100-9,999 participants): 45.2%; 
Percent of plans, Large sponsors (10,000+ participants): 60.4%. 

N = 5,985 (frozen); 11,341 (total). 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans. 

Note: Stratified survey results are weighted and represent the 
population of 'large' plan sponsors, or sponsors who had 100 or more 
participants in all plans reported in PBGC's 2004 Form 5500 Research 
Database. 

[End of figure] 

Figure 6: Sponsors with Collectively Bargained Plans Are Less Likely to 
Have Hard Freezes: 

[See PDF for image] 

This figure contains three pie-charts depicting the following data: 

Firms with no plans subject to collective bargaining: 
Hard freeze: 30%; 
Soft, partial, or other freeze: 25%; 
Not frozen: 45%. 

Firms with some plans subject to collective bargaining: 
Hard freeze: 20%; 
Soft, partial, or other freeze: 31%; 
Not frozen: 49%. 

Firms with all plans subject to collective bargaining: 
Hard freeze: 13%; 
Soft, partial, or other freeze: 38%; 
Not frozen: 49%. 

N = 4,259 (CB plans); 11,340 (total). 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans. 

Note: Estimated percentages for sponsors with no CB or some CB have 95 
percent confidence intervals of within +/-11 percentage points of the 
estimates themselves. For sponsors with all plans subject to CB, the 
confidence intervals are within +/-15 percentage points of the 
estimates themselves. Stratified survey results are weighted and 
represent the population of 'large' plan sponsors, or sponsors who had 
100or more participants in all plans reported in PBGC's 2004 Form 5500 
Research Database. 

[End of figure] 

For Sponsors’ Largest Plans, Just Over Half Were Frozen During or After 
2005: 

* Just over half of sponsors froze their largest frozen plan between 
2005 and the present. 

* Because most sponsors have just one plan, distribution of freeze 
types among sponsors’ largest plans is generally consistent with the 
overall plan population. 

* Because our data are limited to currently frozen plans and exclude 
plans frozen in the past that have already terminated, identifying long 
term trends is difficult. However, based on data from 2003 to 2005, 
PBGC has found that: 
– hard frozen plans are more likely to terminate than non-hard frozen 
plans; 
– there has been a general, recent decline in the number of plan 
terminations; 
– plans frozen in earlier years seem no more likely to terminate than 
more recently frozen plans. 

Figure 7: Among Sponsors’ Largest Frozen Plans, Many Freezes Have Been 
Recently Implemented: 

[See PDF for image] 

This figure is a combination vertical bar and line graph depicting the 
following data: 

Calendar year of implementation of sponsors largest freeze: Through 
2000; 
Number of soft, partial, or other freezes: 319; 
Number of hard freezes: 255; 
Total: 574; 
Standards terminations: 0. 

Calendar year of implementation of sponsors largest freeze: 2000-2002; 
Number of soft, partial, or other freezes: 230; 
Number of hard freezes: 134; 
Total: 364; 
Standards terminations: 475. 

Calendar year of implementation of sponsors largest freeze: 2003-2004; 	
479	446.73
Number of soft, partial, or other freezes: 447; 
Number of hard freezes: 479; 
Total: 926; 
Standards terminations: 177. 

Calendar year of implementation of sponsors largest freeze: 2005-2006; 	
Number of soft, partial, or other freezes: 402; 
Number of hard freezes: 828; 
Total: 1230; 
Standards terminations: 159. 

Calendar year of implementation of sponsors largest freeze: 2007-
present: 330.45	347.99
Number of soft, partial, or other freezes: 348; 
Number of hard freezes: 330; 
Total: 678; 
Standards terminations: 78. 

Median = 2005. 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans and preliminary PBGC data. 

Note: 2007-2008 freeze data represents 2008 data as of survey close. 
PBGC termination data for 2007-2008 includes terminations as of 2007 
only. Also, PBGC termination data is at the plan level, while GAO data 
is at the sponsor level. This graphic represents the distribution of 
dates of currently implemented freezes only. Stratified survey results 
are weighted and represent the population of 'large' plan sponsors, or 
sponsors who had 100 or more participants in all plans reported in 
PBGC's 2004 Form 5500 Research Database. 

[End of figure] 

Finding: Most Sponsors Who Froze a Plan Made an Alternative Replacement 
Plan Available: 

* 83 percent of sponsors offered a replacement plan to participants 
affected by the plan freeze: 
– an overwhelming majority offered enhanced contributions to an 
existing defined contribution (DC) plan or a new DC plan; 
– about 5 percent offered a new DB plan. 

* About 1 in 9 sponsors who froze a plan (11 percent) offered no new or 
replacement retirement plan of any type: 
– Note that these sponsors may have offered an already existing plan, 
but did not replace or improve employer contributions in such a way as 
to ‘replace’ the frozen DB plan. 

Figure 8: 11 Percent of Sponsors with Frozen Plan(s) Did Not Offer 
Affected Participants a New or Enhanced Retirement Plan of Any Type: 

[See PDF for image] 

This figure is a pie-chart depicting the following data: 

Replacement plan offered: 83%; 
No replacement plan offered: 11%; 
Not applicable (e.g., merger, plant closure, bankruptcy, new employee-
only soft freezes, etc.): 6%. 

N = 3,865. 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans. 

Note: Stratified survey results are weighted and represent the 
population of 'large' plan sponsors, or sponsors who had 100 or more 
participants in all plans reported in PBGC's 2004 Form 5500 Research 
Database. 

[End of figure] 

Figure 9: About 83 Percent of Replacement Plans Offered Were New or 
Existing DC Plans: 

[See PDF for image] 

This figure is a pie-chart depicting the following data: 

Enhanced contributions to existing DC plan only: 52%; 
New DC plan only: 27%; 
Multiple plan types: 8%; 
Other only: 6%; 
Plan type not specified: 5%; 
New DB plan only: 1%. 

N = 3,145. 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans. 

Note: Stratified survey results are weighted and represent the 
population of 'large' plan sponsors, or sponsors who had 100 or more 
participants in all plans reported in PBGC's 2004 Form 5500 Research 
Database. 

[End of figure] 

Finding: Sponsors Froze Plans for a Variety of Reasons: 

* Top reasons sponsors reported for freezing a plan were: 
– Cost of annual contributions needed to satisfy funding requirements 
and their impact on cash flow (72 percent); 
– Unpredictability/volatility of plan funding requirements (69 
percent). 

* Few plans were frozen because of mergers (12 percent). 

* Many sponsors (58 percent) were highly or moderately confident that 
their plan was sufficiently well-funded for a standard termination at 
time of freeze. 

Figure 10: Funding Volatility, Effect on Cash Flows Key Reasons for 
Freezing Plans: 

[See PDF for image] 

This figure is a stacked horizontal bar graph depicting the following 
data: 

Selected reasons for plan freeze: Annual contribution/impact on cash 
flow; 
Major reason: 37%; 
Moderate, minor reason: 35%; 
Not reason, no response: 28%. 

Selected reasons for plan freeze: Unpredictability/volatility of 
funding requirements; 
Major reason: 39%; 
Moderate, minor reason: 29%; 
Not reason, no response: 31%. 

Selected reasons for plan freeze: Replace with alternate retirement 
plan; 
Major reason: 23%; 
Moderate, minor reason: 31%; 
Not reason, no response: 46%. 

Selected reasons for plan freeze: Shareholder pressure to raise 
profits; 
Major reason: 2%; 
Moderate, minor reason: 15%; 
Not reason, no response: 82%. 

Selected reasons for plan freeze: Merger with other firm/plan; 
Major reason: 10%; 
Moderate, minor reason: 2%; 
Not reason, no response: 88%. 

Selected reasons for plan freeze: Other reason; 
Major reason: 10%; 
Moderate, minor reason: 1%; 
Not reason, no response: 88%. 

N = 3,865. 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans. 

Note: Stratified survey results are weighted and represent the 
population of 'large' plan sponsors, or sponsors who had 100 or more 
participants in all plans reported in PBGC's 2004 Form 5500 Research 
Database. Values may not sum to 100 percent due to rounding. 

[End of figure] 

Figure 11: About 30 Percent of Sponsors Did Not Believe Their Frozen 
Plan was Sufficiently Funded to Permit Termination at The Time Plan Was 
Frozen: 

[See PDF for image] 

This figure is a horizontal bar graph depicting the following data: 

Confidence at time of freeze that plan could undergo standard 
termination: Not at all confident; 
Percent of sponsors: 30%; 

Confidence at time of freeze that plan could undergo standard 
termination: Slightly confident; 
Percent of sponsors: 11%; 

Confidence at time of freeze that plan could undergo standard 
termination: Moderately confident; 
Percent of sponsors: 27%; 

Confidence at time of freeze that plan could undergo standard 
termination: Highly confident; 
Percent of sponsors: 31%; 

Confidence at time of freeze that plan could undergo standard 
termination: No response; 
Percent of sponsors: 0. 

N = 3,863. 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans. 

Note: Stratified survey results are weighted and represent the 
population of 'large' plan sponsors, or sponsors who had 100 or more 
participants in all plans reported in PBGC's 2004 Form 5500 Research 
Database. 

[End of figure] 

Finding: Sponsors of DB Plans Uncertain About Future Course of Action: 

* For those sponsors with frozen plans: 
– About a third say that they will ultimately terminate the plan, but 
this varies by freeze type; 
– About 60 percent say that they will keep plan frozen indefinitely or 
were otherwise unsure. 

* Many sponsors with at least one not frozen plan have considered or 
discussed a freeze (45 percent), but very few are certain they will 
freeze a plan in the future. 

Figure 12: Few Sponsors Anticipate “Thawing” a Frozen Plan at a Later 
Date: 

[See PDF for image] 

This figure is a horizontal bar graph depicting the following data: 

Sponsor's anticipated outcome for the frozen plan: Plan termination; 
Percent of sponsors: 32%. 

Sponsor's anticipated outcome for the frozen plan: Keep frozen plan 
indefinitely; 
Percent of sponsors: 47%. 

Sponsor's anticipated outcome for the frozen plan: Combine 
assets/liabilities with other plan; 
Percent of sponsors: 4%. 

Sponsor's anticipated outcome for the frozen plan: Unfreeze plan at a 
later date; 
Percent of sponsors: 1%. 

Sponsor's anticipated outcome for the frozen plan: Too early to tell; 
don't know; 
Percent of sponsors: 14%. 

Sponsor's anticipated outcome for the frozen plan: Other; no response; 
Percent of sponsors: 2%. 

N = 3,863. 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans. 

Note: Stratified survey results are weighted and represent the 
population of 'large' plan sponsors, or sponsors who had 100 or more 
participants in all plans reported in PBGC's 2004 Form 5500 Research 
Database. 

[End of figure] 

Figure 13: Sponsors of Soft Frozen Plan-Types Are Significantly Less 
Likely to Anticipate Termination as Outcome for Largest Frozen Plan: 

[See PDF for image] 

This figure is a multiple horizontal bar graph depicting the following 
data: 

Sponsor's anticipated outcome of frozen plan: Plan termination; 
Percent of sponsors, soft, partial, other freezes: 16%; 
Percent of sponsors, hard freezes: 46%. 

Sponsor's anticipated outcome of frozen plan: Keep frozen plan 
indefinitely; 
Percent of sponsors, soft, partial, other freezes: 57%; 
Percent of sponsors, hard freezes: 39%. 

Sponsor's anticipated outcome of frozen plan: Combine 
assets/liabilities with other plan; 
Percent of sponsors, soft, partial, other freezes: 3%; 
Percent of sponsors, hard freezes: 5%. 

Sponsor's anticipated outcome of frozen plan: Unfreeze plan at a later 
date; 
Percent of sponsors, soft, partial, other freezes: 0; 
Percent of sponsors, hard freezes: 1%. 

Sponsor's anticipated outcome of frozen plan: Too early to tell; don't 
know; 
Percent of sponsors, soft, partial, other freezes: 20%; 
Percent of sponsors, hard freezes: 9%. 

Sponsor's anticipated outcome of frozen plan: Other; 
Percent of sponsors, soft, partial, other freezes: 4%; 
Percent of sponsors, hard freezes: 0. 

N = 3,863. 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans. 

Note: Stratified survey results are weighted and represent the 
population of 'large' plan sponsors, or sponsors who had 100 or more 
participants in all plans reported in PBGC's 2004 Form 5500 Research 
Database. 

[End of figure] 

Figure 14: 4 Percent of Sponsors with One or More Not Frozen Plans Have 
Decided to Freeze a Plan in the Future: 

[See PDF for image] 

This figure is a horizontal bar graph depicting the following data: 

Has sponsor considered a freeze for any remaining, not frozen plans? 
Considered/discussed, and will freeze; 
Percent of sponsors: 4%; 

Has sponsor considered a freeze for any remaining, not frozen plans? 
Considered/discussed, but will not freeze; 
Percent of sponsors: 6%. 

Has sponsor considered a freeze for any remaining, not frozen plans? 
Considered/discussed, but are uncertain about future freezes; 
Percent of sponsors: 35%. 

Has sponsor considered a freeze for any remaining, not frozen plans? 
Freezing not discussed or considered; 
Percent of sponsors: 49%. 

Has sponsor considered a freeze for any remaining, not frozen plans? 
Not applicable/no opinion; 
Percent of sponsors: 6%. 

N = 3,666. 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans. 

Note: Stratified survey results are weighted and represent the 
population of 'large' plan sponsors, or sponsors who had 100 or more 
participants in all plans reported in PBGC's 2004 Form 5500 Research 
Database. 

[End of figure] 

Implications for Sponsors: 

* Despite the widespread prevalence of plan freezes, a rise in 
terminations has yet to materialize (notably among the largest plans); 

* Sponsor decision to freeze is either firm-specific reason or based on 
other factors not picked up in our survey. 

Figure 15. Sponsors of Frozen Plans May Terminate at Higher Rates, but 
the Number and Ratio of Terminations Are Currently Relatively Low: 

[See PDF for image] 

This figure is a combination vertical bar and line graph depicting the 
following data: 

Fiscal year: 1990; 
Single employer plans, Total insured plans: 91,899; 
Single employer plans, Standard plan and trusteed plan terminations: 
11,901; 
Single employer plans, Terminations as a percent of all plans: 13%. 

Fiscal year: 1991; 
Single employer plans, Total insured plans: 82,717; 
Single employer plans, Standard plan and trusteed plan terminations: 
8,775; 
Single employer plans, Terminations as a percent of all plans: 11%. 

Fiscal year: 1992; 
Single employer plans, Total insured plans: 71,589; 
Single employer plans, Standard plan and trusteed plan terminations: 
6,827; 
Single employer plans, Terminations as a percent of all plans: 10%. 

Fiscal year: 1993; 
Single employer plans, Total insured plans: 63,778; 
Single employer plans, Standard plan and trusteed plan terminations: 
5,444; 
Single employer plans, Terminations as a percent of all plans: 9%. 

Fiscal year: 1994; 
Single employer plans, Total insured plans: 57,010; 
Single employer plans, Standard plan and trusteed plan terminations: 
4,085; 
Single employer plans, Terminations as a percent of all plans: 7%. 

Fiscal year: 1995; 
Single employer plans, Total insured plans: 53,589; 
Single employer plans, Standard plan and trusteed plan terminations: 
3,991; 
Single employer plans, Terminations as a percent of all plans: 7%. 

Fiscal year: 1996; 
Single employer plans, Total insured plans: 48,748; 
Single employer plans, Standard plan and trusteed plan terminations: 
3,905; 
Single employer plans, Terminations as a percent of all plans: 8%. 

Fiscal year: 1997; 
Single employer plans, Total insured plans: 43,902; 
Single employer plans, Standard plan and trusteed plan terminations: 
3,579; 
Single employer plans, Terminations as a percent of all plans: 8%. 

Fiscal year: 1998; 
Single employer plans, Total insured plans: 41,462; 
Single employer plans, Standard plan and trusteed plan terminations: 
2,540; 
Single employer plans, Terminations as a percent of all plans: 6%. 

Fiscal year: 1999; 
Single employer plans, Total insured plans: 37,536; 
Single employer plans, Standard plan and trusteed plan terminations: 
2,045; 
Single employer plans, Terminations as a percent of all plans: 5%. 

Fiscal year: 2000; 
Single employer plans, Total insured plans: 35,373; 
Single employer plans, Standard plan and trusteed plan terminations: 
1.945; 
Single employer plans, Terminations as a percent of all plans: 6%; 

Fiscal year: 2001; 
Single employer plans, Total insured plans: 32,954; 
Single employer plans, Standard plan and trusteed plan terminations: 
1,682; 
Single employer plans, Terminations as a percent of all plans: 5%; 

Fiscal year: 2002; 
Single employer plans, Total insured plans: 31,229; 
Single employer plans, Standard plan and trusteed plan terminations: 
1,392; 
Single employer plans, Terminations as a percent of all plans: 5%; 

Fiscal year: 2003; 
Single employer plans, Total insured plans: 30,611; 
Single employer plans, Standard plan and trusteed plan terminations: 
1,275; 
Single employer plans, Terminations as a percent of all plans: 4%; 

Fiscal year: 2004; 
Single employer plans, Total insured plans: 30,148; 
Single employer plans, Standard plan and trusteed plan terminations: 
1,334; 
Single employer plans, Terminations as a percent of all plans: 4%; 

Fiscal year: 2005; 
Single employer plans, Total insured plans: 29,605; 
Single employer plans, Standard plan and trusteed plan terminations: 
1,363; 
Single employer plans, Terminations as a percent of all plans: 5%; 

Fiscal year: 2006; 
Single employer plans, Total insured plans: 28,784; 
Single employer plans, Standard plan and trusteed plan terminations: 
1,279; 
Single employer plans, Terminations as a percent of all plans: 4%; 

Source: GAO analysis of PBGC data. 

[End of figure] 

Implications for Participants: 

A freeze may imply: 

* a reduction in anticipated future retirement income for currently 
active employees—especially for mid-career employees—depending on type 
of plan frozen and/or any replacement plan; 

* a continued shift towards defined contribution plans, such as 401k-
type plans, which tend to:
- shift the responsibility for saving and participating in in 
retirement plan, and; 
- place investment risk with the participant. 

Implications for PBGC: 

* Freezes likely to have a slightly positive effect on net financial 
position. 

* However, how much frozen sponsors will improve funding is unclear. 

* Freezes imply a continued decline in number of plans covered by PBGC 
single-employer insurance program. 

[End of section] 

Appendix II Scope and Methodology: 

To achieve our objectives, we conducted a survey of sponsors of defined-
benefit (DB) pension plans. For the purposes of our study, we defined 
"sponsors" as the listed sponsor on the 2004 Form 5500 for the largest 
sponsored plan (by total participants).[Footnote 24] To identify all 
plans for a given sponsor we matched plans through unique sponsor 
identifiers.[Footnote 25] See appendix I for further detail on how we 
defined a sponsor in the data. 

Population and Sample Design: 

We constructed our population of DB plan sponsors from the 2004 Pension 
Benefit Guaranty Corporation's (PBGC) Form 5500 Research Database by 
identifying unique sponsors listed in this database and aggregating 
plan level data (for example, plan participants) for any plans 
associated with this sponsor. As a result of this process, we 
identified 22,960 plan sponsors. A summary of the number of sponsors 
and participants is shown in table 1. 

Table 1: Summary of Key Survey Sample Characteristics: 

Participant category of sponsor: less than 100; 
Number sponsors: 15,156; 
Percent of total sponsors: 66.0; 
Number participants: 306,757; 
Percent of total participants: 1.0; 
Liabilities: 13,369,579,852; 
Percent of liabilities: 0.9. 

Participant category of sponsor: 100 - 999; 
Number sponsors: 5,010; 
Percent of total sponsors: 21.8; 
Number participants: 1,730,589; 
Percent of total participants: 5.4; 
Liabilities: 53,057,015,994; 
Percent of liabilities: 3.5. 

Participant category of sponsor: 1,000 - 4,999; 
Number sponsors: 1,829; 
Percent of total sponsors: 8.0; 
Number participants: 4,171,045; 
Percent of total participants: 13.0; 
Liabilities: 137,965,716,185; 
Percent of liabilities: 9.2. 

Participant category of sponsor: 5,000 - 49,999; 
Number sponsors: 858; 
Percent of total sponsors: 3.7; 
Number participants: 12,442,522; 
Percent of total participants: 38.6; 
Liabilities: 506,194,771,738; 
Percent of liabilities: 33.8. 

Participant category of sponsor: 50,000-plus; 
Number sponsors: 107; 
Percent of total sponsors: 0.5; 
Number participants: 13,553,358; 
Percent of total participants: 42.1; 
Liabilities: 785,694,847,153; 
Percent of liabilities: 52.5. 

Participant category of sponsor: Total; 
Number sponsors: 22,960; 
Percent of total sponsors: 100.0; 
Number participants: 32,204,271; 
Percent of total participants: 100.0; 
Liabilities: 1,496,281,930,922; 
Percent of liabilities: 100.0. 

Source: GAO analysis of 2004 PBGC Form 5500 research data. 

[End of table] 

As shown in table 1, sponsors having 100 or more participants accounted 
for about 99 percent of DB plan participants and about 99 percent of 
total liabilities in sponsored plans in 2004. We limited our study to 
this population of 7,804 larger sponsors (our study population) because 
it would be informative about the vast majority of covered participants 
and we expected a higher success rate in locating, contacting, and 
obtaining responses from this group than would have been obtained from 
the smallest sponsors. 

We drew a stratified probability sample of 471 DB plan sponsors, where 
the strata were based on the number of participants covered by the 
sponsor's plans. See table 2 for a summary of the study population, the 
selected sample, respondents, and out-of-scope sponsors by stratum. 
[Footnote 26] 

Table 2: Summary of Study Population by Sampling Stratum: 

Stratum number: 1; 
Sampling stratum: 100 - 999; 
Sponsor population: 5010; 
Sample selected: 126; 
Respondents: 99; 
Out of scope: 1; 
Response rate: 79%. 

Stratum number: 2; 
Sampling stratum: 1,000 - 4,999; 
Sponsor population: 1829; 
Sample selected: 123; 
Respondents: 101; 
Out of scope: 0; 
Response rate: 82%. 

Stratum number: 3; 
Sampling stratum: 5,000 - 49,999; 
Sponsor population: 858; 
Sample selected: 117; 
Respondents: 82; 
Out of scope: 1; 
Response rate: 71%. 

Stratum number: 4; 
Sampling stratum: 50,000 +; 
Sponsor population: 107; 
Sample selected: 105; 
Respondents: 48; 
Out of scope: 0; 
Response rate: 46%. 

Stratum number: Total; 
Sampling stratum: [Empty]; 
Sponsor population: 7804; 
Sample selected: 471; 
Respondents: 330; 
Out of scope: 2; 
Response rate: 78%. 

Source: GAO analysis of survey of DB pension plan sponsors regarding 
frozen plans and 2004 PBGC Form 5500 research data. 

[End of table] 

The sample was designed to provide acceptably precise estimates of the 
proportions of sponsors with at least one frozen plan. Further, 
sponsors in the larger sponsor strata are sampled at a higher rate than 
sponsors in the smaller strata to improve the precision of estimates of 
plan-level and participant-level estimates. As shown in table 2, 
response rates ranged from 46 percent to 82 percent, with an overall 
weighted response rate of 78 percent. 

Administration of Survey: 

We developed two questionnaires to obtain information about the 
experiences of DB pension plan sponsors that have 100 or more 
participants. One questionnaire--with 18 questions--was mailed in 
November 2007 to a stratified random sample of 366 pension plan 
sponsors and asked questions about their experiences with DB plans, 
benefit freezes, if any, and factors that may have contributed to the 
decision to freeze. The strata were based on the size of the plan 
sponsor (as measured by number of participants) and were comprised of 
three categories. In the initial mailing, we sent a cover letter and 
questionnaire to pension plan sponsors. To encourage responses, we 
followed up with another mailing of a copy of the questionnaire in 
December 2007. In addition, to try to increase the response rate, we 
called all sponsors who had not responded to the mail survey. 

A second, longer questionnaire was sent in December 2007, via the 
Internet, to the 105 largest pension plan sponsors who were part of the 
Fortune 500 or Global Fortune 500 and had 50,000 or more participants. 
This was preceded by an email to notify respondents of the survey and 
to test our email addresses for these respondents. This web 
questionnaire asked plan sponsors about their recent experiences with 
DB plans and benefit freezes. The first 17 questions and last question 
of this questionnaire mirrored the questions asked in the mail 
questionnaire about benefit freezes. We asked these plan sponsors 
additional questions about their reactions to the current environment 
for such plans and how the plan or plans may be a part of the firm's 
total compensation structure. To help increase our response rate, we 
sent four follow-up emails from January through April 2008. In 
addition, we also contacted some respondents by telephone to clarify 
unclear responses. We received responses from 48 respondents. For the 
18 questions that asked about frozen pension plans in both the mail and 
web survey, we obtained an overall unweighted response rate of 70 
percent and a weighted response rate of 78 percent. 

To pretest the questionnaires, we conducted cognitive interviews and 
held debriefing sessions with 11 pension plan sponsors; three pretests 
were conducted in-person and focused on the web survey, and eight were 
conducted by telephone and focused on the mail survey. We selected 
respondents to represent a variety of sponsor sizes and industry types, 
including a law firm, an electronics company, a defense contractor, a 
bank, and a university medical center, among others. We conducted these 
pretests to determine if the questions were burdensome, understandable, 
and measured what we intended. On the basis of the feedback from the 
pretests, we modified the questions as appropriate. 

Content Coding of Responses: 

In addition to the closed-ended questions, we provided an opportunity 
to provide responses to an open-ended question about the key challenges 
facing the future health of the single-employer DB system. The 
responses to this question were classified and coded for content by a 
GAO analyst, while a second analyst verified that the original analyst 
had coded the response appropriately. Two-hundred-seventeen respondents 
provided substantive comments to this item. Some comments were coded 
into more than one category since some respondents provided more than 
one topic or category. This means that the number of coded items does 
not equal the total number of respondents who commented. These comments 
cannot be generalized to our population of plan sponsors. See table 3 
for a tally of the comments. 

Table 3: Summary of Content Analysis, by General Category of Comment: 

General category of comment: Affordability (i.e. cost of funding, 
administrative cost, cash flow); 
Number of mentions: 108. 

General category of comment: Uncertainty/volatility of funding; 
Number of mentions: 59. 

General category of comment: Volatility of market forces; 
Number of mentions: 24. 

General category of comment: Non-cost administrative issues (i.e. 
complexity, reporting requirements, accounting rules); 
Number of mentions: 46. 

General category of comment: Legislative issues; 
Number of mentions: 21. 

General category of comment: Regulatory issues; 
Number of mentions: 40. 

General category of comment: Workforce issues (i.e. demographics, 
recruitment/retention); 
Number of mentions: 46. 

General category of comment: Disadvantageous compared to DC plans; 
Number of mentions: 7. 

General category of comment: Competition (i.e. industry, 
international); 
Number of mentions: 13. 

General category of comment: Strong belief in DB system; 
Number of mentions: 5. 

General category of comment: Litigation; 
Number of mentions: 5. 

General category of comment: PBGC insurance (i.e. premiums, incentives 
for unhealthy plans); 
Number of mentions: 17. 

General category of comment: Miscellaneous other; 
Number of mentions: 35. 

Source: GAO content analysis of survey of DB pension plan sponsors 
regarding frozen plans. 

[End of table] 

Sampling Error and Estimation: 

To produce the estimates from this survey, answers from each responding 
case were weighted in the analysis to account statistically for all the 
members of the population, including those that were not selected or 
did not respond to the survey. Estimates produced from this sample are 
from the population of sponsors represented in PBGC's 2004 Research 
Database that had at least 100 participants. 

Because our results are based on a sample and different samples could 
provide different estimates, we express our confidence in the precision 
of our particular sample's results as a 95 percent confidence interval 
(for example, plus or minus 11 percentage points). We are 95 percent 
confident that each of the confidence intervals in this report include 
the true values in the study population. Unless we note otherwise, 
percentage estimates based on all sponsors (for example, percent of 
sponsors with at least one frozen plan) have 95 percent confidence 
intervals of within plus or minus 8 percentage points. All other 
percentage estimates in this report have 95 percent confidence 
intervals of within plus or minus 11 percentage points, unless 
otherwise noted. Confidence intervals for other estimates are presented 
along with the estimate where used in the report. 

Nonsampling Error: 

In addition to the reported sampling errors, the practical difficulties 
of conducting any survey may introduce other types of errors, commonly 
referred to as nonsampling errors. For example, differences in how a 
particular question is interpreted, the sources of information 
available to respondents, or the types of people who do not respond can 
introduce unwanted variability into the survey results. We included 
steps in both the data collection and data analysis stages for the 
purpose of minimizing such nonsampling errors. 

We took the following steps to increase the response rate: developing 
the questionnaire, pretesting the questionnaires with pension plan 
sponsors, conducting multiple follow-ups to encourage responses to the 
survey, contacting respondents to clarify unclear responses, and double 
keying and verifying all data during data entry. 

Although the overall response rate was 78 percent, we performed an 
additional analysis to check whether our survey respondents had 
characteristics that were significantly different from all sponsors in 
the study population. To do this, we identified several sponsor 
characteristics[Footnote 27] that were available for the entire study 
population and estimated these population values using the survey 
respondents. For each estimate tested, we found no significant 
difference between the estimate and the actual population value. 
[Footnote 28] 

We performed computer analyses of the sample data to identify 
inconsistencies and other indications of error and took steps to 
correct inconsistencies or errors. A second, independent analyst 
checked all computer analyses. 

Comparability of Survey Results with 2006 PBGC Results: 

In July 2008 discussions with PBGC staff and in their comments on this 
report, PBGC indicated that it has calculated estimates of the number 
of hard frozen plans on the most recently available Form 5500 data. 
Based on Form 5500 filings received to date, PBGC currently estimates 
that 15.9 percent of plans were hard frozen in 2006. Our survey 
estimates are not directly comparable with PBGC's estimates for a 
number of reasons: 

* The GAO Survey is Based on a Statistical Sample - GAO survey 
estimates, including those involving hard freezes are based on a 
probability sample and is subject to sampling error. The PBGC 
calculations are based on Form 5500 data filings which must be 
completed by plan sponsors of PBGC-insured defined benefit plans. 

* The GAO Survey Focuses on Sponsors with Larger Plans - Our survey 
specifically excluded "smaller" sponsors--those with less than 100 
total participants. Although leaving out such smaller sponsors excluded 
a majority of all plans on the 2004 Form 5000 file, it only excluded 
about 1 percent of participants, and allowed us to survey a smaller 
sample. However, if the rate of hard freezes was different for plans 
having fewer than 100 participants than for larger plans, then we would 
expect that our survey estimate would differ from an estimate developed 
from all plans. 

* The GAO Survey Focuses on Hard-and Soft-Freezes and Includes Post- 
2006 Freezes -Our survey questionnaire used a definition of a hard 
freeze that was intended to be substantively similar to the definition 
contained with the Form 5500 instructions. However, our questionnaire 
also included a broad range of plan freeze definitions as well as 
additional questions pertaining to a sponsor's largest frozen plan. The 
mode of data collection, topical focus, format, item wording or item 
interpretation of our questionnaire may influence respondents in 
different ways relative to the applicable hard freeze character code on 
the Form 5500. One critical difference that could lead to different 
estimates is that our survey captures freezes that occurred since 2006. 
The 2006 Form 5500 only includes information as of the end of the 2006 
plan year. 

* Possible Differences in Actual Survey Respondents - While we 
generally directed our survey to the individual we identified as being 
most knowledgeable about the DB plans of a given sponsor, it may be the 
case that the individuals responding to our survey are not the very 
same individuals that also complete the Form 5500, possibly leading to 
different responses. 

Despite these differences in approach and methodology, some may wish to 
compare PBGC's estimate of 15.9 percent of plans were hard frozen in 
2006 and our study population estimate of 23.3 percent of plans as hard 
frozen among sponsors with 100 or more participants in all plans. Any 
comparisons should be made with extreme caution for all of the reasons 
noted above. Further, the 95 percent confidence interval for our 
estimate ranges from 18.3 to 28.3 percent. 

PBGC also calculated that, based on Form 5500 filings for plan year 
2006 received as of July 2008, 0.75 million active participants out of 
2.39 million total participants were in frozen plans. As with the 
estimated percentage of hard frozen plans, our numbers are not 
completely comparable, due to differences in our methodologies Although 
our survey identified the active participants affected by the sponsor's 
largest frozen plan, we did not specifically ask about total 
participants in the largest frozen plan. Our questionnaire also asked 
sponsors to report the calendar year of freeze implementation, while 
the Form 5500 data is reported on a plan year basis, which can differ 
from the calendar year. 

Another important difference is that PBGC data is not current and new 
hard frozen plans and active participants affected by such freezes may 
yet be identified. Some of these newly identified plans may be plans of 
sponsors that reported freezes in our survey in 2007 or later. When we 
removed hard frozen plans that occurred for a sponsor's largest plan 
since 2006 and recalculated the number of active participants affected 
by hard freezes, we estimate that 1.27 million active participants are 
affected by a hard freeze in the sponsor's largest frozen plan. As with 
all of our survey estimates, this result is subject to sampling error. 
The 95 percent confidence interval of active participants affected by 
the sponsors largest hard frozen plan (removing post-2006 freezes) 
ranges from 0.75 million to 1.78 million. 

[End of section] 

Appendix III: Comments from the Pension Benefit Guaranty Corporation: 

PBGC: 
Pension Benefit Guaranty Corporation: 
Office of the Director: 
Protecting America's Pensions: 
1200 K Street, N.W. 
Washington, D.C. 20005-4026: 

July 17, 2008: 

Ms. Barbara Bovbjerg, Director: 
Education, Workforce, and Income Security Issues: 
Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Ms. Bovbjerg: 

Thank you for the opportunity to review and comment on the draft report 
entitled, "Defined Benefit Pensions: Plan Freezes Affect Millions of 
Participants and May Pose Retirement Income Challenges" (GAO-08-817). 

In many respects, the report's findings are consistent with what PBGC 
has found in its studies based on data from plans' Form 5500s - the 
number of newly frozen plans increased over the 2003-2005 period and 
then decreased; small plans (those with fewer than 1,000 participants) 
are more likely to be frozen that larger plans; and freezing plans has 
long-term implications for the health of the defined benefit system, 
PBGC, and current workers' future retirement incomes. 

In other respects, the report's findings differ rather substantially 
from our own hard-frozen plan findings - the percentage of plans the 
report shows as being hard frozen is fifty percent larger than our most 
recent data indicate (based on 2006 Form 5500 filing information), and 
the number of active workers in hard-frozen plans is about 2.25 times 
as high as we found. These differences are, no doubt, due to 
differences in the studies' methodologies. PBGC's studies looked only 
at hard-frozen plans using data from the Form 5500, the annual report 
plans file with DOL, IRS, and PBGC. The GAO study uses survey data, is 
sponsor-based rather than plan-based, and covers a broader range of 
plan freeze types. We note that GAO's plan size category was determined 
in a manner that makes direct comparison with data from other sources 
difficult. 

There are several reasons GAO's estimate of the percentage of hard-
frozen plans could be 50 percent larger than ours: 

* One reason the hard-frozen plan results are different is that GAO's 
data are more current than the data we used. GAO's sample includes 
plans that were hard frozen after 2006. These plans are only now 
beginning to report their hard-freeze status on the Form 5500. We know 
companies are continuing to freeze plans, so we would expect GAO to 
find a higher percentage of hard-frozen plans than we found. However, 
we would not expect it to find fifty percent more hard-frozen plans 
than were reported on the Form 5500 for 2006, especially since news 
reports seem to indicate that the number of companies announcing an 
immediate or future plan freeze declined after 2006. (This highlights 
the critical importance of PBGC receiving more current Form 5500 data, 
as discussed below.) 

* A second reason for different results is the possibility of response 
bias in GAO's testing. It is possible that sponsors who have frozen one 
or more of their plans are more likely to have responded to GAO's 
survey than sponsors who did not freeze any of their plans. Comparing 
the GAO sample of plans against those reporting being hard frozen on 
the Form 5500 would indicate whether a higher percentage of responders 
than non-responders reported being hard frozen. If response bias is 
present, GAO's frozen plan estimates will likely be too high. 

* As noted above and discussed in more detail below, GAO's size 
variable is unusual. Possibly, the weights, which apparently were based 
on this variable, had the unintended effect of increasing the estimates 
of the percentage of plans that were hard frozen and frozen to a lesser 
extent. The weights may have substantially increased the percentage of 
plans found to be hard frozen. 

* One thing we noticed was that an attempt was made to remove from the 
universe plans that terminated after 2004, but no attempt was made to 
add plans that were newly covered after 2004. These newly insured plans 
are much less likely to have been frozen than plans we have insured for 
a longer period. Not including these newly insured plans reduces the 
apparent universe of PBGC-covered plans and would slightly increase the 
percentage of plans estimated to be frozen. 

* Some plans that are hard-frozen may not report that fact on the Form 
5500. Our studies are based solely on reported freezes, but we have 
noticed that some plans, that do not report being hard frozen, also do 
not report on the Schedule B to the Form 5500 any "expected increase in 
current liability due to benefits accruing during the plan year." If 
some or all of these plans are hard frozen, then the data we use 
underreport the true number of hard-frozen plans. 

GAO estimates that 3.3 million active workers are in frozen plans, with 
just over half, 1.7 million, in hard-frozen plans. Form 5500 data 
indicate that about 2.4 million total participants were in hard-frozen 
plans at the end of the 2006 plan year and that just 750,000 of them 
were active workers. We realize that a number of large plans have been 
frozen recently, and that they have not yet reported being frozen on 
the Form 5500. This will explain some, but we doubt all of the 
difference between our numbers and GAO's. Some of the potential 
explanations listed above for the differences in our findings of the 
percentage of plans that have been hard frozen may also help explain 
the differences in the number of active participants who are in frozen 
plans. In addition, this part of GAO's analysis focuses on the largest 
frozen plan a sponsor has. Applying the study's weights to these 
"largest frozen plans" may cause an overestimate of the number of 
impacted active participants because many frozen plans will be smaller 
than the sponsors' "largest frozen plan." 

GAO's size indicator appears to be atypical. GAO added the participants 
in all a sponsor's defined benefit plans to determine its size 
variable, but what this total represents is unclear. It is not a good 
estimator of the company's size--less than half of plan participants 
are active workers; there is no requirement that all of a company's 
workers be covered by a defined benefit plan; some participants may 
belong to more than one of the sponsor's plans; and, if the company is 
part of a controlled group, participants who never worked for the 
company could be included in this size total. Using this size variable 
is a concern if the weights GAO uses to adjust its results are based on 
this variable and not on actual plan size. It is unclear what the 
results would represent. Using this unusual size variable makes GAO's 
results not strictly comparable with results from studies that use 
other data and methodologies. 

Despite our concerns about the magnitudes of the findings in the 
report, it advances our knowledge on the extent of freezes that are not 
hard freezes. GAO finds that about as many plans as are hard frozen are 
frozen to a lesser extent. While we are as concerned about the absolute 
magnitude of these findings as we are about the magnitude of the hard 
freeze findings, the relative magnitudes are probably close and provide 
important information not previously available. 

GAO's finding that most active participants in plans being frozen are 
eligible for coverage under another employer-sponsored plan is also an 
important finding. Freezing a defined benefit plan does not generally 
end a sponsor's sense of responsibility for providing some retirement 
income for its workers. However, GAO did not determine how many active 
participants actually participate in the new, generally defined 
contribution plans nor whether the new plans will provide benefits 
comparable to the benefits that would have been earned had the 
participants' defined benefit plans not been frozen. This was beyond 
the scope of their study, but as GAO points out, the answer has 
implications for the adequacy of retirement income for these 
participants. 

One issue that is made apparent in comparing the results of the draft 
report with our own work is the delay the PBGC faces in obtaining basic 
plan data. GAO recently highlighted this issue in its report "Private 
Pensions: Government Actions Could Improve the Timeliness and Content 
of Form 5500 Pension Information," (GAO-05-491, June 3, 2005). Some 
improvement in timeliness will ensue once the mandated electronic 
filing of the Form 5500 becomes operational for the 2009 filing year. 
Even then, however, the reported data will reflect the status of plans 
seven or more months prior to PBGC receiving the data. PBGC's awareness 
of changing trends among the plans it insures will continue to lag the 
actual changes, unless the data can be made available on a more timely 
basis. PBGC has consistently pressed for more current Form 5500 data in 
order to better perform the work that is required of the agency. 

With nearly 44 million workers and retirees relying on PBGC's insurance 
programs, we appreciate GAO's work in highlighting issues that relate 
to pensions, including those that are the subject of this report. We 
look forward to working with GAO in the future. Again, thank you for 
the opportunity to comment on this report. 

Sincerely, 

Signed by: 

Charles E. F. Millard: 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Barbara D. Bovbjerg at (202) 512-7215 or bovbjergb@gao.gov. 

Staff Acknowledgments: 

In addition to the contact above, Charles A. Jeszeck, Charles Ford, 
Isabella Johnson, Luann Moy, Mark Ramage, Joe Applebaum, Craig Winslow, 
Gene Kuehneman, Brian Friedman, Melissa Swearingen, Marietta Mayfield, 
Sue Bernstein, and Walter Vance made important contributions to this 
report. 

[End of section] 

Footnotes: 

[1] Employers may voluntarily sponsor DB plans, defined contribution 
(DC) plans, or both for their employees. DB plans promise to provide a 
benefit that is generally based on a formula that typically includes an 
employee's salary and years of service. Under a DC plan, such as a 
401(k) plan, employees have individual accounts to which the employee, 
employer, or both make contributions, and benefits are based on 
contributions along with investment returns (gains and losses) on the 
accounts. 

[2] The voluntary termination of a fully funded DB plan is called a 
standard termination. Plan sponsors may terminate fully funded plans by 
purchasing a group annuity contract from an insurance company, under 
which the insurance company agrees to pay all accrued benefits, or by 
paying lump-sum benefits to participants if permissible. 

[3] GAO, Private Pensions: Timely and Accurate Information Is Needed to 
Identify and Track Frozen Defined Benefit Plans, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-04-200R] (Washington, D.C.: Dec. 
17, 2003). 

[4] See Pension Benefit Guaranty Corporation, Pension Insurance Data 
Book 2006, p. 3-13 (Washington, D.C., Fall 2007) and Pension Benefit 
Guaranty Corporation, An Analysis of Frozen Defined Benefit Plans 
(Washington, D.C., Dec. 21, 2005). 

[5] The Form 5500 Annual Return/Report of Employee Benefit Plan is 
jointly published by the Department of Labor, in conjunction with the 
Internal Revenue Service and Pension Benefit Guaranty Corporation, to 
be used by plan administrators and employers in order to satisfy their 
legally required annual reporting obligations. 

[6] All estimates based on our sample are subject to sampling error. 
For example the 95 percent confidence interval of the total participant 
estimate ranges from 2.25 million to 4.34 million participants. Unless 
otherwise noted, all percentage estimates based on this survey have 95 
percent confidence intervals of within +/-11 percentage points of the 
estimate itself. Of the 3.3 million estimated participants affected by 
a freeze, 1.7 million are affected by a hard freeze, and 1.8 million 
are affected by a soft, partial, or other freeze. The 95 percent 
confidence interval for participants affected by hard freeze is from 
1.1 million to 2.3 million. The 95 percent confidence interval for 
participants affected by soft, partial, or other freezes is from 0.7 
million to 2.5 million. See appendix II for additional information on 
sampling error of estimates. 

[7] Active participants may continue to accrue benefits because they 
are currently employed by the sponsoring firm. Retirees are no longer 
employed by the firm and are collecting their retirement benefits. 
Separated vested participants are no longer employed by the sponsoring 
firm and no longer accrue benefits, but they are not yet collecting 
their retirement benefits. 

[8] See appendix I, slide 5 for general freeze type definitions. Exact 
definitions used in the survey may be found in the special product 
supplement. See GAO, Defined Benefit Pensions: Survey of Sponsors of 
Large Defined Benefit Pension Plans, GAO-08-818SP (Washington, D.C.: 
July 21, 2008). 

[9] Closed and unclassified plans are only included for this analysis 
(see app. I, slide 12). In other analyses, only those plans reporting a 
specific freeze type will be included in calculations of frozen plans. 
Of the 51 percent of all plans reported as closed to new entrants, 44 
percent reported a specific freeze type. Another roughly 9 percent of 
plans were closed to new entrants but were not classified by their 
sponsors as being frozen. Those plans defining a freeze plus those that 
reported the plan as closed to new hires, but not defined as frozen, 
may not sum to the total number of closed plans. This occurs because, 
in certain instances, a partial freeze may not be closed to all new 
entrants. For example, a subset of new entrants may be part of the 
group unaffected by the partial freeze. 

[10] An example of a tier might be if an employer were to offer certain 
participants the option to freeze certain accruals in one DB plan as a 
condition of participation and accruals in another, alternative plan 
(either DB or DC). 

[11] The statistical significance of this finding applies only to hard 
frozen plans. Sponsors with some or all plans that were subject to CB 
did not freeze their plans overall at a statistically different rate 
from the general population of sponsors. Estimated percentages for 
sponsors with no CB or some CB have 95 percent confidence intervals of 
within +/-11 percentage points of the estimates themselves. For 
sponsors with all plans subject to CB, the confidence intervals are 
within +/-15 percentage points of the estimates themselves. 

[12] For further information on how plan, demographic, and market 
factors generally influence larger sponsors with respect to plan 
freezes, see Alicia H. Munnell and Mauricio Soto, Center for Retirement 
Research, Boston College "Why Are Companies Freezing Their Pensions?" 
(Boston, 2007). 

[13] For this survey, a replacement plan is defined as an addition to 
retirement plan offerings, either in the form of a new plan or an 
enhancement of an existing plan. Therefore, a sponsor that allows 
affected participants to join an existing and unchanged plan would not 
be considered to have replaced its frozen plan(s). 

[14] These reasons were identified as the most prevalent among a list 
of 15 reasons given to survey respondents. The reasons were created and 
selected using a literature review and feedback from survey pretesters. 

[15] To view the complete list of reasons and prevalence, see GAO-08-
818SP. 

[16] The 95 percent confidence intervals for percentage estimates by 
freeze type are within +/-14 percent of the estimate itself. 

[17] For a discussion on how plan freezes may affect expected 
retirement income, see Jack VanDerhei, Defined Benefit Plan Freezes: 
Who's Affected, How Much, and Replacing Lost Accruals," Employee 
Benefits Research Institute (EBRI) Issue Brief No. 291 (Washington 
D.C., March 2006). The EBRI study modeled the effect of a universal 
hard freeze to show how anticipated accruals were affected by key plan, 
participant, and market characteristics. 

[18] Traditional formula is used to refer to pay based plans, which use 
formulas based on salary and service, such as final average pay plans. 
These types of plan formulas typically accrue increasingly larger 
benefits at the end of an employee's active working career. 

[19] See GAO, Private Pensions: Low Defined Contribution Plan Savings 
May Pose Challenges to Retirement Security, Especially for Many Low- 
Income Workers, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-8] 
(Washington, D.C.: Nov. 7, 2007). 

[20] Frozen plan sponsors must continue to pay premiums to PBGC for its 
participants even if those participants' future benefit accruals have 
been frozen. Frozen plan sponsors must also continue to maintain the 
plan in accordance with federal pension law, including funding the plan 
by making minimum required contributions. However, sponsors may find it 
somewhat easier to bring the frozen plan to full funding if future 
participant accruals are limited. 

[21] PBGC has witnessed a steady decline in the percentage of single- 
employer participants that are active participants. PBGC has only 
recently seen a slight decrease in the number of total insured 
participants, but the large percentage of plans closed to new entrants 
seems to suggest possible further decline. 

[22] The flat-rate premium is a per-participant premium that plans pay 
to PBGC each year. In 2008, the rate for the flat premium is $33 per 
participant in insured single-employer plans. This rate is adjusted 
annually by an average-national-wage index. 

[23] The variable-rate premium applies only to insured single-employer 
plans that have unfunded vested benefits. The rate for the variable- 
rate premium is $9 per $1,000 of underfunding. 

[24] We removed plans that terminated after 2004, which may also 
include plans that reported a final filing or merged into another plan. 
We also remove any sponsors whose total plans had fewer than 100 total 
participants. We were unable to add any new plans or sponsors that may 
have been newly insured by PBGC after 2004 because complete data was 
not available at the time we constructed our survey sample. Although 
newly-insured plans may be considerably less likely to be frozen, we 
expect not including these plans would have an extremely small impact 
on our estimates. Likely, very few new plans would have qualified under 
our sponsor definition in relation to the number of plans represented 
in our survey. Further, any newly created plans will be represented to 
the extent that they are associated with sponsors already in our 
survey. 

[25] These include the nine-digit employee identification number (EIN) 
found in the Form 5500 as well as the Committee on Uniform Securities 
Identification Procedures (CUSIP) number, which is contained in the 
PBGC Research Database. A CUSIP number identifies most North American 
securities, including stocks of all registered U.S. and Canadian 
companies and U.S. government and municipal bonds. The number consists 
of nine characters (including letters and numbers) that uniquely 
identify a company or issuer and the type of security. In addition to 
these two methods, we identified sponsors by visually inspecting plan 
names and sponsor names from the database to find common sponsors that 
were not identified by EINs or CUSIPs. 

[26] Initially a sample of 480 sponsors was selected, but we found that 
some of the sponsors on our sponsor file were listed more than once. We 
then aggregated information to a unique sponsor and removed these 
additional sponsor listings from both the sample and the population. 
The above tables present totals by stratum after this removing 
duplicate sponsor listing. 

[27] These sponsor characteristics were the number of plans, number of 
total participants, number of active participants, total sponsor 
liabilities for plans, and total retired participants. 

[28] This analysis was repeated separately for the largest sponsors 
only (stratum 4), and for this group there were also no significant 
differences between the sample and the population of sponsors with 
50,000 or more participants. 

[End of section] 

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