The analysis also found that industries with higher DB plan sponsorship rates, such as utilities and manufacturing, are less likely to freeze a plan than those with lower sponsorship rates. However, companies in industries that have been severely affected by the economic crisis - financial services and automobile industries in particular - are exceptions. Almost half of the DB plan sponsors in the financial services industry and one third of the DB plan sponsors in the automobile industry have frozen plans.
"As companies in industries that have suffered through the crisis struggle to keep their heads above water, freezing or closing pension plans may seem like an effective way to cut costs," said Alan Glickstein, senior retirement consultant at Watson Wyatt. "However, this strategy 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."
A separate Watson Wyatt analysis found that freezing pensions does not have a positive effect on companies' market value. The analysis of 82 publicly-traded companies that froze or closed their pension plans between 2003 and 2007 found that there is an insignificant or negative impact on stock prices associated with the announcement of a pension freeze or close. Refuting conclusions of previous research, 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. In the cases where such an announcement did have a statistically significant effect, more often than not the employer's stock price decreased.
"Freezing a plan may produce some accounting gains, but it will not provide companies with long-term cash flow relief (either absolute level or volatility) for many years," said Mark Warshawsky, director of retirement research at Watson Wyatt. "Also, even if these freezes do lead to savings, there will be no immediate positive effect on firm value, which could even become diminished in the long run if employees begin to view the firm as an uncompetitive employer in light of its shrinking commitment to retirement and its transfer of risk to employees."
