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June 24, 2005
More Companies Freeze, Terminate Pension Plans

Eleven percent of companies in the Fortune 1000 that sponsor defined benefit plans had a frozen or terminated plan in 2004, up from 7 percent in 2003 and 6 percent in 2002, according to a new analysis by Watson Wyatt Worldwide, a human capital consulting firm.

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Additionally, 4 percent of employers had pension plans that were closed to new hires in 2004. Nearly two-thirds of the Fortune 1000 companies (63 percent) currently sponsor a defined benefit plan.

"Ongoing legal uncertainties about the status of cash balance plans and proposals to impose stricter funding requirements are driving up the number of plan closures and freezes," says Sylvester Schieber, director of U.S. benefits consulting at Watson Wyatt.

The analysis also found that about half of the companies that terminate their plans drop off the Fortune 1000 list the following year, indicating that the decision may often be driven by weak financial performance, according to Watson Wyatt. About one-half of the companies that froze or terminated their plans in 2004 had credit ratings below investment grade, compared with 25 percent of firms with active pension plans.

Improved returns in equity markets and sizable cash contributions by employers helped boost the average pension plan funding ratio to 83 percent in 2004. The average funding ratio was 81 percent in 2003 and 76 percent in 2002, the analysis found.

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