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July 13, 2007
Employers Continue Shift from Traditional Pensions to 401(k)

About two-thirds of sponsors of traditional pension plans have either closed the plan to new hires or frozen it for all participants in the last two years or plan to do so in the next two years, according to a survey by the Employee Benefit Research Institute.

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In the last two years, slightly more than 35 percent of the respondents said they had made at least one change to their, with closing the plan to new hires (25.3 percent) and freezing the plan for all members (12.9 percent) as the two most common changes.

Slightly more than 33 percent of respondents said they were likely to make a change to their defined benefit plan in the next two years.

Pension plan sponsors say the driving forces behind these pension benefit reductions are a new law by Congress that in some cases significantly increases their pension plan costs, and pending accounting rule changes that are also expected to dramatically increase the cost and risk of offering a pension benefit to workers.

The survey found that many employers are shifting their focus to their 401(k). The vast majority of employers that have closed their pension plans have also increased contributions to workers' defined contribution (401(k)-type) plans, according to the survey

In addition, employers that are reducing pension benefits are adopting "automatic enrollment" of their workers in 401(k) plans to encourage more retirement saving.

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