When Pensions Freeze
http://www.cbsnews.com/stories/2006/01/13/earlyshow/saturday/main1208717.shtml

(CBS) IBM is the latest in a list of companies (also including
Verizon and Sears) that are freezing their pension plans.

More common are "partial freezes," such as closing the pension to new
workers, which is something Motorola Inc., Lockheed Martin Corp.
and Aon Corp. have done, or to workers under a certain age, as NCR Corp.
has done. Companies often freeze their pensions in stages. Sears froze
its pension as of Jan. 1. But in 2004, before its merger with Kmart Corp.,
Sears stopped offering pensions to new workers and cut off existing
employees below age 40 from building benefits.

Who gets hurt the most?

years (especially in their 40s and 50s) could end up with much less
money than expected. Traditional pension benefits build up fastest in an
employee's final years at a company. That's because benefits are
typically calculated by multiplying years of service by the average salary
in the final years, when pay usually is highest. As much as half of a
person's pension is earned in the last five years on the job. Even with
bigger 401(k) contributions, these workers may never catch up.

Why are companies freezing pensions? Companies say they're
trying to become more competitive and adapt to changing times.

Something is better than nothing, but employees whose companies
switch to a 401(k), even one with benefits that are more generous,
could well prove worse off than with a pension. Investing their savings
themselves means that just a few years of bad returns could leave them
with no time to recover and a poorer retirement.

What's more, there's nothing to stop employers from cutting the
401(k) contribution in the future.
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