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For the first time since before the 2008 global financial crisis, corporate defined benefit (DB) pension plans began 2023 either fully funded or overfunded (see chart below). While plan assets have declined significantly due to the fall in both stock and bond values, pension liabilities have fallen even further due to rising interest rates. Some plans have previously found themselves in overfunded positions only to see those surpluses disappear based on financial market movements. Recently, we’ve heard companies in this situation looking to take action today to protect their strong-funded levels.
A shrinking minority of companies still offer active DB pension plans—but they haven’t entirely disappeared from Corporate America. A majority of our corporate partners still maintain DB pension plans, although most are frozen in part or full. While a large majority of freezes occurred in the decade 2000‐2010, we are continuing to see companies making the decision to freeze and shift to either a cash balance formula or to a defined contribution plan, such as 401(k) plan.
During the past five years, we’ve seen more than 25 corporate partners freeze their pension plans. A common practice is for a company to announce a DB pension plan freeze to employees at least a year or more before it will take effect. We saw some companies provide employees with multiple years’ advance notice, and a few companies that even announced five- or ten‐year transitions.
Still maintain a pension plan, active or frozen
Have an actively accruing pension plan
Of those still accruing are using a cash balance formula
That had a pension plan either closed or froze it, for all participants or for new hires only
That adopted a partial freeze for new hires later froze the plan for all employees
Source: Based on 330 corporate partners as of December 2022.
Employees may have questions when their employer changes retirement plan rules, including who can earn benefits. In our extensive experience supporting companies through similar pension transitions, the top-of-mind questions for employees typically include:
Pension change or freeze:
Pension termination and payout:
Learn more about our experience with corporate events and how we can help corporate leaders, HR teams and employees navigate pension changes, freezes and terminations.
Read more on this topic in GSAM’s U.S. Corporate Pension Review and Preview 2023 report.
Equity securities are more volatile than bonds and subject to greater risks. Small and mid-sized company stocks involve greater risks than those customarily associated with larger companies.
Bonds are subject to interest rate, price and credit risks. Prices tend to be inversely affected by changes in interest rates.
Alternative investments often are speculative, typically have higher fees than traditional investments, often include a high degree of risk and are suitable only for eligible, long-term investors who are willing to forgo liquidity and put capital at risk for an indefinite period of time. They may be highly illiquid and can engage in leverage and other speculative practices that may increase volatility and risk of loss.
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