How to Freeze a Retirement Account

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Certain retirement plans have seen a dramatic increase in "freezing assets." Freezing a retirement plan isn't where the federal government swoops in and stops all activity based on court orders. Freezing a retirement plan refers to restructuring a defined-benefits plan to stop accruals, reducing the long-term exposure of the company to pay benefits. A company can freeze a retirement asset in a few different ways.

  • Discuss with your company advisors, board of directors and tax consultants regarding the benefits of freezing a defined benefit pension plan. Evaluate what type of freeze is most beneficial for the company. A freeze can stop all new employees from getting any pension benefits but may still allow existing employees to accrue benefits. Another form of a freeze may stop all future pension credit for all employees. Some plans allow some employees who are fully vested to receive 100% of benefits accrued to that point but don't allow further accrual of new benefits.

  • Vote to approve the freeze and the details of how the freeze affects employees.

  • Obtain union consent of the freeze if your employees are covered under a labor union agreement.

  • Send notification to every employee regarding the change in employee benefits and how it affects their retirement benefits. This is a good time to inform employees of any new retirement programs such as a 401(k) plan that will be offered instead. This notification must happen prior to the change occurring though there is no minimum required time frame.

  • Notify the pension administrator regarding the freeze in writing.

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