How to Freeze a Retirement Account
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.
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Instructions
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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.
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Vote to approve the freeze and the details of how the freeze affects employees.
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Obtain union consent of the freeze if your employees are covered under a labor union agreement.
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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.
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Notify the pension administrator regarding the freeze in writing.
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Tips & Warnings
Guaranteeing benefits places employers at risk of substantial losses when markets create losses in the pension assets. Contributory plans such as 401k reduce this risk, reducing the increased burden of poor economic conditions on a company.
Companies in various levels of financial health are freezing retirement plans. In some cases, the plan is already underfunded and the company hopes to put a stop to further losses and pay the existing pension fund participants in full. Other companies are fully funded but want to replace pensions with less risky 401k plans.
Employees at risk of losing possible pension benefits may contact unions, the state attorney general or the Pension Benefit Guaranty Corporation about protecting their retirement rights. PBCG maintains insurance for pension benefits with employers paying premiums to provide the benefits.
