Many companies stung by the recession are looking to cut costs by putting the expenses and liabilities associated with their pension plans under the microscope. Many firms have stopped matching employee’s contributions to 401(k) plans, and last week we learned that many Fortune 1000 firms continue to freeze their traditional defined-benefit pension plans. But freezing such plans might be a mistake.
Just 607 firms in the Fortune 1000 offer a traditional DB plan and of those 190, or 31.3 percent, froze their plan in 2009. Contrary to what one might expect and contrary to conclusions of previous research on the subject, Watson Wyatt said “freezing a pension plan does not lead to a boost in a company’s stock price.”
In its study of 82 publicly traded companies that froze or closed their pension plans between 2003 and 2007, Watson Wyatt found that there is an insignificant or negative impact on stock prices associated with the announcement of a pension freeze or close.
“In 71 out of 82 cases the stock prices of companies did not change significantly in the 23 days around an announcement of retirement plan changes,” the release said. “In cases where such an announcement did have a statistically significant effect, more often than not the employer’s stock price decreased.”
So there you have it. Freezing a plan isn’t good for your stock price, at least in the short term.
What’s more, Alan Glickstein, senior retirement consultant at Watson Wyatt, said in the release that freezing pension plans “could come with substantial hidden costs — for employers, who could face increased difficulties in managing the retirement of their workforces, and for employees, who could face reduced retirement resources as a result of a frozen pension plan or a reduced 401(k) match.”
So if you’re sitting there working for the man and the man is thinking about freezing your pension, send Watson’s study to HR, the CFO, even the president. It might be a long shot, but maybe they’ll reconsider the negative effects and hidden costs of freezing the pension. After all, no one in the C-suite wants the value of their company stock falling
(c) 2009, MarketWatch.com Inc. Source: McClatchy-Tribune Information Services.