Freezing Pension Plans

A company can freeze a pension plan for some or all of the employees covered by the plan. In the instance of a pension freeze, the employees stop earning some or all the benefits from the point of freeze. The employers have great latitude to change their pension plan, but the scope of change depends on the details of specific situation. Not under any circumstances, the companies can take away the benefits already earned by the employees at the point of freeze.

We all are aware of frozen pension, but not the various types of freezes that lead to the rise in such pension funds. Various types of freezes are in existence depending on whether some or all of the participants are allowed to continue earning the benefits under the plan. Technicians use various terms to label these freezes, but important is to understand many ways an employer can freeze the pension.

Plan freeze is one of the many ways an employer can completely bar its employees from earning further benefits. An employer when initiates this freeze, all the employees immediately become vested in whatever they have earned while losing their ability to continue earning future benefits.
Alternatively, a freeze may be applied to obstruct the growth of benefits for some but not all employees. Most commonly, this scenario results when the company plans not to enroll new employees in the plan while existing employees are allowed to draw the benefits.

In yet another type of pension freeze, employees may be obstructed to get the pension credits for future years of work. However, they are allowed to have benefits figured on the current pay at the time they leave the office, rather than at the date of the freeze.

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