Defined Benefit Pensions: Plan Freezes Affect Millions of Participants and May Pose Retirement Income Challenges
Published: 2008-07-21T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Private defined benefit (DB) pension plans are an important source of retirement income for millions of Americans. However, from 1990 to 2006, plan sponsors have voluntarily terminated over 61,000 sufficiently funded single-employer DB plans. An event preceding at least some of these terminations was a so-called plan "freeze"--an amendment to the plan to limit some or all future pension accruals for some or all plan participants. Available information that the government collects about frozen plans is limited in scope and may not be recent. GAO conducted a stratified probability sample survey of 471 single-employer DB plan sponsors out of a population of 7,804 (with 100 or more total plan participants) to gather more timely and detailed information about frozen plans. We have prepared this report under the Comptroller General's authority as part of our ongoing reassessment of risks associated with the Pension Benefit Guaranty Corporation's (PBGC) single-employer pension insurance program, which, in 2003, we placed on our high-risk list of programs that need broad-based transformations and warrant the attention of Congress and the executive branch. Frozen DB plans have possible implications for PBGC's long-term financial position. This report examines (1) the extent to which DB pension plans are frozen and the characteristics of frozen plans; and (2) the implications of these freezes for plan participants, plan sponsors, and the PBGC.
section_title: What GAO Found
paragraphs: Frozen plans are fairly common today, with about half of all sponsors in our study population having one or more frozen DB plans. Overall, about 3.3 million active participants in our study population, who represent about 21 percent of all active participants in the single-employer DB system, are affected by a freeze. The most common type of freeze is a hard freeze--a freeze in which all future benefit accruals cease--which accounts for 23 percent of plans in our study population; however, an additional 22 percent of plans are frozen in some other way. Larger sponsors (i.e. those with 10,000 or more total participants) are significantly less likely than smaller sponsors to have implemented a hard freeze, with only 9 percent of plans under a hard freeze among larger sponsors compared with 25 percent of plans under a hard freeze among smaller sponsors. The vast majority of sponsors with frozen plans in our study population, 83 percent, have alternative retirement savings arrangements for these affected participants, but 11 percent of sponsors do not. (An additional 6 percent of sponsors froze plans under circumstances that preclude a replacement plan.) Plan sponsors cited many reasons for freezing their largest plans but most often noted two: the impact of annual contributions on their firm's cash flows and the unpredictability of plan funding. Sponsors of frozen plans generally expressed a degree of uncertainty about the anticipated outcome for their largest plan, but sponsors whose largest plan was hard frozen were significantly more likely to anticipate plan termination as the likely plan outcome. The implications of a freeze vary for sponsors, participants, and PBGC. For plan sponsors, while hard freezes appear to indicate an increased likelihood of plan termination, a rise in plan terminations has yet to materialize. For participants, a freeze generally implies a reduction in anticipated future retirement benefits, though this may be somewhat or entirely offset by increases in other benefits or a replacement retirement-savings plan. However, because the replacement plans offered to affected participants most frequently are defined contribution, the investment risk and responsibility for saving are shifted to employees. Finally, plan freezes may potentially improve PBGC's net financial position, but the degree to which it is accompanied by sponsor efforts to improve plan funding is unclear. In any event, the shrinking of the single-employer pension insurance program plan base seems likely to continue.

section_title: Letter
paragraphs: The number of private defined-benefit (DB) plans, an important source of  retirement income for millions of Americans, has declined substantially  over the past two decades. For example, plan sponsors voluntarily  terminated over 61,000 sufficiently funded single-employer DB plans from  1990 to 2006. An event preceding at least some of these terminations was  a so-called plan “freeze”—an amendment to the plan to limit some or all  future pension accruals for some or all plan participants. Over the last five  years, a number of large, high profile employers have announced their  intention to freeze one or more of their DB plans. These larger plans  represent a significant portion of plan liabilities and participants in the  private DB pension system.
In 2003, when asked to determine the number of frozen DB plans, we  reported that reliable and timely data on DB plan freezes were not  generally available. Since that report, additional studies have been  published, including two from the Pension Benefit Guaranty Corporation  (PBGC), the federal corporation that insures private DB pension plans.  PBGC’s studies analyze plan freezes using information submitted by DB  pension plan sponsors on the Form 5500 Annual Return/Report of  Employee Benefit Plan. However, the data from the Form 5500, the  primary source of information on DB plans, are limited to so-called “hard  freezes.” Under a hard freeze, all current employees who participate in the  plan receive no additional benefit accruals after the effective date of the  freeze, and employees hired after the freeze are ineligible to participate in  the plan. The Form 5500 information on freezes does not include so-called  “soft-freezes,” which limit future benefit accruals based on a component of  the benefit accrual formula (that is, the service or salary component).  According to the most recent PBGC study, 14 percent of the single- employer plans it insures were hard frozen at the end of 2005, a 48 percent  increase since 2003. The PBGC study also found that plans with 100 or  fewer participants were generally more likely to be frozen than larger  plans.
In addition to the informational limitations of the Form 5500, we have also  noted that its data are not always available on a timely basis. For example,  the Form 5500’s most recently available and complete information on plan  freezes is for calendar year 2005 and thus does not include recent plan  freezes. Given these concerns and broader concerns about the  implications of plan freezes for the retirement security of plan  participants, GAO initiated a survey of frozen DB plans under the authority  of the Comptroller General of the United States as part of our ongoing  reassessment of risks associated with the PBGC’s single-employer pension  insurance program. In 2003, we placed this program on our high-risk list of  programs that need broad-based transformations and warrant the  attention of Congress and the executive branch. Frozen DB plans have  possible implications for PBGC’s long-term financial position.
subsections: section_title: Reporting Objectives
paragraphs: To better understand the current plan-freeze environment and its  significance to the DB system going forward, we address the following  questions:  1.  To what extent are DB pension plans frozen, and what are the  characteristics of such freezes?  2.  What are the implications of such freezes for plan sponsors,  participants, and the PBGC?
section_title: Scope and Methodology
paragraphs: To determine the extent and characteristics among plans that are currently  frozen, we collected and analyzed original survey data. We also analyzed  and reviewed recent studies of frozen DB plans, notably PBGC’s studies of  hard frozen DB plans. Appendix I contains revised slides that update the  preliminary briefing information that we provided to interested  congressional staffs and members, as well as officials from the  Department of Labor, PBGC, and the Department of the Treasury from  late-April to June 2008.
We conducted our work from April 2006 to July 2008, in accordance with  generally accepted government auditing standards. Those standards  require that we plan and perform our work to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our research objectives. We believe that the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our objectives.
To achieve our survey objectives, we surveyed a stratified probability  sample of 471 DB pension sponsors from PBGC’s 2004 Form 5500  Research Database. We limited our study population to 7,804 sponsors that  had 100 or more total participants in sponsored plans, and our survey  population results represent estimates for all sponsors with this  characteristic. While they are a minority of sponsors (about 34 percent),  sponsors whose plans have more than 100 participants represent about  99 percent of all DB plan participants in the single-employer DB system.  Further, sponsors with more than 100 participants in participating plans  also represent 99.1 percent of the total liabilities among single-employer  plans. To deploy the survey, we mailed a questionnaire to DB pension plan  sponsors in the three smallest strata we identified. In addition, as part of a  longer questionnaire, we collected similar information via a web survey  about plan freezes from the very largest strata of plan sponsors. The  survey results can be reviewed in GAO-08-818SP. See appendix II for a  more detailed discussion about our survey methodology.
section_title: Frozen Plans Affect about One-Fifth of Active DB Plan Participants
paragraphs: Overall, an estimated 3.3 million active participants in our study  population—or 21 percent of all active participants in the private, single- employer DB system—are affected by reported freezes. (See app. I, slide 9  and slide 10.) Active participants are employees that are or may become  eligible to accrue or receive additional benefits under a plan; if all  participants in the DB system (that is, active participants, retirees, and  separated vested participants) are considered, the proportion represented  by active participants who are affected by plan freezes falls to 10 percent.  (See app. I, Slide 9.) We considered only those participants who are  currently accruing benefits (that is, active participants) at the time of  freeze implementation to be affected by a freeze. The above calculations,  therefore, do not include sponsors whose largest frozen plans are under a  new-employee-only soft freeze, where the plan is closed to new entrants  and benefit accruals for active participants remain unchanged. The extent  to which active participants are affected by a freeze depends on the type  of freeze in place. Under hard freezes, future benefit accruals cease for  active participants. In contrast, soft freezes may reduce future benefit  accruals for some or all active participants. Soft freezes are distinct from  hard freezes in that the restrictions on participants’ future benefit accruals  are less comprehensive than the total cessation of future accruals under  hard freezes.
Our survey shows that about half the sponsors in the study population  have one or more frozen plans. (See app. I, slide 11.) Overall, about  51 percent of plans in the study population were reported as closed to new  entrants, the basic requirement of a plan freeze. Nearly half of plans with a  reported freeze, or 23 percent of all plans in the study population, were  under a hard freeze. (See app. I, slide 12.) In addition, 12 percent reported  some type of soft freeze. About 6 percent reported a partial plan freeze,  while 4 percent reported an “other” freeze, which include situations where  plan participants are separated into plan tiers, or freezes brought on by  bankruptcy, plant closure, or plan merger.
The survey results suggest that two factors may influence the likelihood  that sponsors will implement a hard freeze: sponsor size and the extent to  which a sponsor’s plans are subject to collective bargaining (CB)  agreements. Larger sponsors, those with 10,000 or more total participants,  are significantly less likely than smaller sponsors to have implemented a  hard freeze, with only 9.4 percent of plans under a hard freeze among  larger sponsors compared with 25.4 percent of plans under a hard freeze  among smaller sponsors. (See app. I, slide 13.) Similarly, firms with some  or all plans subject to CB are significantly less likely to implement hard  freezes than sponsors with no plans subject to CB. (See app. I, Slide 14.)  However, these two factors may be related, as larger sponsors in our  survey are generally more likely to have one or more plans subject to CB  than smaller sponsors.
About half of the freezes of sponsors’ largest frozen plans have occurred  since 2005. (See app. I, slide 16.) This figure includes only plans that are  currently frozen, and it does not represent a longitudinal dataset of all plan  freezes. Any plans frozen during the same time period and terminated  prior to GAO’s survey are not included. However, PBGC data shows us  that there has been a recent decline in the number of plan terminations  among plans with 100 or more participants. The number of standard  terminations declined by two-thirds from 2001 to 2002 through 2005 to  2006, a period during which there was a significant increase in the number  of current plan freezes. This may suggest possible growth in the number of  frozen plans currently in the single-employer DB system.
Of sponsors in the study population with one or more frozen plans,  83 percent offered a replacement retirement savings vehicle to affected  participants in their largest frozen plans. (See app. I, slide 18.) Eleven  percent of sponsors did not offer any replacement plan to affected  participants; however, this figure includes any sponsors who allowed  affected participants to join or increase employee contributions to an  existing but unchanged plan. An additional 6 percent of sponsors froze  plans under extenuating circumstances that preclude the offering of a  replacement plan (such as, a firm merger, bankruptcy, plant closure,  multiple employer plan, or new-employee-only soft freeze). Of those  sponsors offering replacement plans, over 80 percent offered enhanced  existing or new DC plans. (See app. I, slide 19.) About 5 percent of  sponsors offered a new DB plan to affected participants.
Sponsors of frozen plans cited a number of reasons why they froze their  largest plan. “Annual contributions needed to satisfy funding requirements  and their impact on cash flows” was cited most often, with 72 percent of  sponsors responding that this was a reason for freezing their largest frozen  plans; “unpredictability/volatility of plan funding requirements” followed  with 69 percent. (See app. I, slide 21.) The remaining 13 reasons range in  prevalence from 54 percent responding that “plan was frozen in  anticipation of replacing it with an alternative retirement plan” to  12 percent for “other reason.”
About two-thirds of sponsors with frozen plans reported at least some  level of confidence that their largest frozen plan was reasonably well- funded at the time of freeze. (See app. I, slide 22.) Further, 58 percent of  sponsors were highly or moderately confident that their largest frozen  plans could have undergone standard, fully-funded terminations instead of  freezing. This is compared with 30 percent of sponsors who were not at all  confident that their largest frozen plans could have undergone standard  terminations. However, there are some limitations to these data. First, the  survey asked about sponsor beliefs, not actual funding levels. Second, the  data refer to when the freezes were implemented and may bear no relation  to current funding levels. Third, the data only include each sponsor’s  largest frozen plan. Nevertheless, the data provide some insight into  sponsors’ state of mind when they chose to freeze their largest frozen  plans.
For sponsors with plans that are already frozen, fewer than half reported  having a firm idea of the anticipated outcome for their largest frozen plans.  Among these sponsors, a very small number anticipate “thawing,” or  unfreezing, their plan, and about one-third said they will eventually  terminate their largest frozen plans. (See app. I, slide 24.) In contrast,  nearly half say they will keep the plan frozen indefinitely. Another  14 percent report that it is too early to make a decision or that they are  uncertain what the outcome will be. The anticipated outcome for a  sponsor’s largest plan varies significantly by the type of frozen plan.  Sponsors with frozen plans that were not under a hard freeze were  significantly less likely to anticipate termination as the outcome for their  largest frozen plan. (See app. I, slide 25.) Among sponsors with one or  more plans not currently frozen, only 10 percent have firmly decided to  freeze, or not freeze, any plans in the future. (See app. I, slide 26.) Thirty- five percent of sponsors have considered freezing additional plans in the  future but are uncertain if they will, while nearly 50 percent have not yet  considered or discussed future freezes.
section_title: Plan Freezes Have Various Implications for Key Stakeholders
paragraphs: The prevalence of frozen DB plans today has different implications for key  stakeholders in the single-employer DB system—plan sponsors,  participants, and the PBGC.
Our survey found that nearly a third of the sponsors ultimately expect to  terminate their largest frozen plan. Further, we found that about half of all  frozen plans were hard frozen and that sponsors of hard frozen plans  appear more likely to anticipate termination as an eventual outcome.  However, the number of plan terminations has not increased recently. For  example, from 1990 to 2006, total annual standard terminations averaged  about 7 percent of insured single-employer plans. However, from 2002 to  2006, this rate had been far lower. (See app. I, slide 28.) Further, larger  plans, or those plans with 100 or more participants, which account for  about 36 percent of plans but which account for the overwhelming number  of the system’s active participants, accounted for only about 9 percent of  the terminations during the 2002 to 2006 period. This suggests that the  single-employer DB system’s decline does not appear to be accelerating,  with many large plans continuing in operation.
Plans may freeze for many reasons, and our survey population of frozen  plan sponsors cited cost of contributions and volatility of plan funding as  the key reasons for freezing their largest plans. However, when we asked  all sponsors, including those with no frozen plans, about the key  challenges to the future health of the single-employer DB system generally,  the very same issues of plan cost and volatility were listed most frequently.  Given that these issues seem to be an inherent problem for all sponsors, it  may be that each sponsor decision to freeze a plan has a firm-specific  reason or is based on other factors not picked up in our survey. In any  case, the current prevalence of plan freezes does not present an  encouraging landscape for DB plan sponsorship.
For active plan participants, plan freezes imply a possible reduction in  anticipated retirement income. In particular, a hard freeze, which ceases  future benefit accruals, is especially likely to reduce anticipated retirement  income—unless this income is made up through increased savings,  possibly from such sources as higher wages or other nonwage benefit  increases. Although a majority of the sponsors with frozen plans cited plan  cost considerations as a key motivation for the freeze—suggesting that  they may be somewhat reluctant to fully redirect any potential cost  savings from the freeze to other areas of compensation or benefits—our  survey did not collect information to fully address this issue. For example,  while our survey indicated that sponsors most often do offer a  replacement plan for frozen participants and this offering is most often a  DC or 401(k)-type plan, we did not ask about the generosity of these  replacement plans or of the previous frozen DB plan.
The offering of an alternative plan may have different consequences for  employees in different stages of their career. Reductions to anticipated  accruals for participants affected by a freeze will vary considerably  depending on key plan features, participant demographic characteristics,  and market interest rate factors. However, for those participants with  traditional pension plan formulas that are hard frozen and replaced with  a typical DC, or 401(k)-type plan, all else being equal, longer-tenured,  midcareer workers are most likely to see the greatest reductions in  anticipated retirement income. This effect occurs because older, longer- tenured employees generally have less time remaining in their careers to  offset anticipated accrual losses through typical 401(k)-type plan  contributions compared to younger workers. Alternatively, depending on  the generosity of the frozen, pay-based pension plan, certain younger (or  less well-tenured) and more mobile participants might actually see  increases in their anticipated retirement incomes by moving to a typical, or  average, 401(k)-type plan.
These concerns are not just relevant for the current active participants of a  frozen plan. Our survey also shows that roughly a majority of sponsors in  our study population have closed their plans to new employees, many of  whom will also likely depend on a DC plan as a source of retirement  income. Our survey did not collect information on the degree to which  affected employees are participating in either the newly offered DC plans  or any existing, but enhanced, DC plan. DC plans are increasingly the  dominant retirement savings vehicle for private sector workers. Like DB  plans, DC plans pose their own potential retirement-income challenges,  including the need for employees to participate in the plan and to  effectively manage the investment risk of their DC accounts if they are to  have a secure retirement. Yet for some workers, especially for lower- income workers, this may be difficult to do as they are less likely to  participate when offered the opportunity to do so and less able to make  even limited contributions.
The effect of plan freezes on PBGC’s net financial position is not certain,  but it could be modestly positive in both the immediate- and long-term;  freezes generally reduce system liabilities and potentially minimize claims  among financially weak plans. The possible improvement in PBGC’s net  position, however, assumes that the aggregate effect of plan freezes does  not significantly reduce the agency’s premium income over time. The  reductions in flat-rate premium income could come from a decline in  participants, possibly from the considerable number of plans that we  found that were closed to new employees or from terminations that may  result from the freeze. Variable-rate premium income could also be  reduced to the degree that sponsors of underfunded plans improve  funding as a result of a plan freeze.
PBGC’s financial status is influenced not only by the number of freezes  and terminations but also by the relative health and size of the plans and  sponsors that decide to terminate. For example, PBGC finds that hard  frozen plans are more likely to be underfunded and to terminate, which  may highlight two other trends. Plan sponsors that initiate a standard  termination must have sufficient assets in the plan to pay participants their  accrued benefits and are unlikely to represent the very same plan sponsors  that are also underfunded. If relatively well-funded and financially healthy  sponsors are the ones who terminate their frozen plans, it may leave the  underfunded, and potentially financially distressed, frozen plan sponsors  under PBGC’s insurance responsibility. Alternatively, data from PBGC  shows that relatively large plans terminate at a much lower rate than  smaller plans. This is possibly encouraging for PBGC’s financial status, to  the degree that these larger plans do not result in claims, because these  plans represent the bulk of liabilities and participants.
Ultimately, no matter what the impact on its net financial position, the  freezing of plans and the exiting from the single-employer DB system by  sponsors do not indicate future plan growth for the PBGC. One part of its  mission is to foster the continuation and maintenance of private-sector  pension plans. PBGC’s single-employer insurance program currently  covers 28,800 plans, which is 65 percent fewer plans than it covered 15  years ago. Given the prevalence of plans that are currently frozen and the  relationship between plan freezes and plan termination, the shrinking of  the single-employer insurance program plan base seems likely to continue.
section_title: Concluding Observations
paragraphs: The private DB pension system, a key source of retirement income for  millions of Americans, continues to experience a slow decline. Plan  freezes are a common phenomenon, affect a large number of participants,  and have important implications for plan sponsors, participants, and the  PBGC. While plan freezes are not as irrevocable as plan terminations, they  are indicative of the system’s continued erosion. Yet freezes are just one of  the many developments now affecting the DB system. The broad ranging  Pension Protection Act of 2006, changes in accounting rules, rising retiree  health care costs and health care costs generally, a weak economy, and  falling interest rates all represent challenges that DB plan sponsors may  need to confront. How key stakeholders, plan sponsors, participants, the  PBGC, other government agencies, and congressional policymakers  respond to all of these challenges will shape the fortunes of the DB system  and its future role in providing retirement security to American workers.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Department of Labor, the  Department of the Treasury, and PBGC. The PBGC provided written  comments, which appear in appendix III. PBGC generally agreed with the  findings and conclusions of the report. However, PBGC did express some  concerns about our survey methodology—especially with respect to the  comparability of our estimates of hard frozen plans and affected active  participants with their estimates, which are based on the Form 5500 filings  for plan year 2006 received to date. PBGC notes that differences in results  may be due to a variety of reasons, including that our survey data are more  recent than the 2006 Form 5500 and the potential for some reporting errors  on the Form 5500. Other explanations include the potential for response  bias in the GAO survey, our use of a size variable that is sponsor-based  rather than plan-based and the GAO survey’s omission of newly formed  pension plans since 2004.
We addressed many of PBGC’s specific methodological concerns by  providing additional information to our technical appendix. We note that  the very different methodologies used by PBGC and GAO in estimating the  number of hard plan freezes and the number of active participants affected  by such freezes suggest that the studies’ results should be compared with  extreme caution. We do note that our survey questionnaire was pre-tested  extensively. Further, regarding the issue of response bias, we considered  this as we analyzed our survey’s results. We do not believe response bias is  a significant issue because we did not find significant differences when we  analyzed a comparison of key characteristics of the survey respondents to  all sponsors in the study population. We also did not include newly-formed  DB plans other than those formed by survey respondents because such  data were not available, and, in our view, would not have a significant  effect on our estimates.
PBGC identified a number of explicit areas of agreement with our report.  They noted that our finding with respect to the differences in prevalence  of freezes between large and small plans is generally consistent with their  estimates. They also mentioned that our report was consistent with their  views on the effect that freezes may have on the future health of the DB  system, the PBGC itself, as well as the impact of freezes on retirement  incomes. Further, despite PBGC’s concerns about the magnitude of certain  estimates in our report, they generally found the relative estimates of  alternative definitions of plan freezes to be new and important  information. Lastly, PBGC noted that the comparison of our survey  estimates to Form 5500 estimates highlights the delay that PBGC faces  getting basic plan data. PBGC expects that plan data will become timelier  in the near future, but some delay will still remain that may hinder PBGC’s  awareness of changing trends among plans that it insures.
The Department of Labor and Treasury provided technical comments,  which we incorporated as appropriate.
We are sending copies of this report to the Secretary of Labor, the  Secretary of the Treasury, and the Director of the PBGC, appropriate  congressional committees, and other interested parties. We will also make  copies available to others on request. In addition, the report will be  available at no charge on GAO’s Web site at http://www.gao.gov.
If you have any questions concerning this report, please contact me at  (202) 512-7215 or bovbjergb@gao.gov. Contact points for our Office of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made contributions are listed in appendix V.
section_title: Appendix I: Frozen DB Plan Briefing Slides
subsections: section_title: GAO Freeze Survey: Sampling Summary
paragraphs: Liabilities (in billions)
subsections: section_title: Finding: Plan Freezes Are a Common Occurrence
section_title: For Sponsors’ Largest Plans, Just Over Half Were Frozen During or After 2005
subsections: section_title: Finding: Most Sponsors Who Froze a Plan Made an Alternative Replacement Plan Available
section_title: Finding: Sponsors Froze Plans for a Variety of Reasons
subsections: section_title: Top reasons sponsors reported for freezing a plan were:
paragraphs: – Cost of annual contributions needed to satisfy funding requirements  and their impact on cash flow (72 percent) – Unpredictability/volatility of plan funding requirements (69 percent)
section_title: Finding: Sponsors of DB Plans Uncertain About Future Course of Action
subsections: section_title: For those sponsors with frozen plans:
section_title: Despite the widespread prevalence of plan
paragraphs: freezes, a rise in terminations has yet to  materialize (notably among the largest  plans)
subsections: section_title: A freeze may imply:
section_title: Freezes likely to have a slightly positive
section_title: Appendix II: Scope and Methodology
paragraphs: To achieve our objectives, we conducted a survey of sponsors of defined- benefit (DB) pension plans. For the purposes of our study, we defined  “sponsors” as the listed sponsor on the 2004 Form 5500 for the largest  sponsored plan (by total participants). To identify all plans for a given  sponsor we matched plans through unique sponsor identifiers. See  appendix I for further detail on how we defined a sponsor in the data.
subsections: section_title: Population and Sample Design
paragraphs: We constructed our population of DB plan sponsors from the 2004 Pension  Benefit Guaranty Corporation’s (PBGC) Form 5500 Research Database by  identifying unique sponsors listed in this database and aggregating plan  level data (for example, plan participants) for any plans associated with  this sponsor. As a result of this process, we identified 22,960 plan  sponsors. A summary of the number of sponsors and participants is shown  in table 1.
As shown in table 1, sponsors having 100 or more participants accounted  for about 99 percent of DB plan participants and about 99 percent of total  liabilities in sponsored plans in 2004. We limited our study to this  population of 7,804 larger sponsors (our study population) because it  would be informative about the vast majority of covered participants and  we expected a higher success rate in locating, contacting, and obtaining  responses from this group than would have been obtained from the  smallest sponsors.
We drew a stratified probability sample of 471 DB plan sponsors, where  the strata were based on the number of participants covered by the  sponsor’s plans. See table 2 for a summary of the study population, the  selected sample, respondents, and out-of-scope sponsors by stratum.
The sample was designed to provide acceptably precise estimates of the  proportions of sponsors with at least one frozen plan. Further, sponsors in  the larger sponsor strata are sampled at a higher rate than sponsors in the  smaller strata to improve the precision of estimates of plan-level and  participant-level estimates. As shown in table 2, response rates ranged  from 46 percent to 82 percent, with an overall weighted response rate of  78 percent.
section_title: Administration of Survey
paragraphs: We developed two questionnaires to obtain information about the  experiences of DB pension plan sponsors that have 100 or more  participants. One questionnaire—with 18 questions—was mailed in  November 2007 to a stratified random sample of 366 pension plan  sponsors and asked questions about their experiences with DB plans,  benefit freezes, if any, and factors that may have contributed to the  decision to freeze. The strata were based on the size of the plan sponsor  (as measured by number of participants) and were comprised of three  categories. In the initial mailing, we sent a cover letter and questionnaire  to pension plan sponsors. To encourage responses, we followed up with  another mailing of a copy of the questionnaire in December 2007. In  addition, to try to increase the response rate, we called all sponsors who  had not responded to the mail survey.
A second, longer questionnaire was sent in December 2007, via the  Internet, to the 105 largest pension plan sponsors who were part of the  Fortune 500 or Global Fortune 500 and had 50,000 or more participants.  This was preceded by an email to notify respondents of the survey and to  test our email addresses for these respondents. This web questionnaire  asked plan sponsors about their recent experiences with DB plans and  benefit freezes. The first 17 questions and last question of this  questionnaire mirrored the questions asked in the mail questionnaire  about benefit freezes. We asked these plan sponsors additional questions  about their reactions to the current environment for such plans and how  the plan or plans may be a part of the firm’s total compensation structure.  To help increase our response rate, we sent four follow-up emails from  January through April 2008. In addition, we also contacted some  respondents by telephone to clarify unclear responses. We received  responses from 48 respondents. For the 18 questions that asked about  frozen pension plans in both the mail and web survey, we obtained an  overall unweighted response rate of 70 percent and a weighted response  rate of 78 percent.
To pretest the questionnaires, we conducted cognitive interviews and held  debriefing sessions with 11 pension plan sponsors; three pretests were  conducted in-person and focused on the web survey, and eight were  conducted by telephone and focused on the mail survey. We selected  respondents to represent a variety of sponsor sizes and industry types,  including a law firm, an electronics company, a defense contractor, a  bank, and a university medical center, among others. We conducted these  pretests to determine if the questions were burdensome, understandable,  and measured what we intended. On the basis of the feedback from the  pretests, we modified the questions as appropriate.
section_title: Content Coding of Responses
paragraphs: In addition to the closed-ended questions, we provided an opportunity to  provide responses to an open-ended question about the key challenges  facing the future health of the single-employer DB system. The responses  to this question were classified and coded for content by a GAO analyst,  while a second analyst verified that the original analyst had coded the  response appropriately. Two-hundred-seventeen respondents provided  substantive comments to this item. Some comments were coded into more  than one category since some respondents provided more than one topic  or category. This means that the number of coded items does not equal the  total number of respondents who commented. These comments cannot be  generalized to our population of plan sponsors. See table 3 for a tally of  the comments.
Table 3. Summary of Content Analysis, by General Category of Comment  Affordability (i.e. cost of funding, administrative cost, cash  flow)
Non-cost administrative issues (i.e. complexity, reporting  requirements, accounting rules)
Workforce issues (i.e. demographics, recruitment/retention)
Disadvantageous compared to DC plans  Competition (i.e. industry, international)
Strong belief in DB system  PBGC insurance (i.e. premiums, incentives for unhealthy  plans)
section_title: Sampling Error and Estimation
paragraphs: To produce the estimates from this survey, answers from each responding  case were weighted in the analysis to account statistically for all the  members of the population, including those that were not selected or did  not respond to the survey. Estimates produced from this sample are from  the population of sponsors represented in PBGC’s 2004 Research Database  that had at least 100 participants.
Because our results are based on a sample and different samples could  provide different estimates, we express our confidence in the precision of  our particular sample’s results as a 95 percent confidence interval (for  example, plus or minus 11 percentage points). We are 95 percent confident  that each of the confidence intervals in this report include the true values  in the study population. Unless we note otherwise, percentage estimates  based on all sponsors (for example, percent of sponsors with at least one  frozen plan) have 95 percent confidence intervals of within plus or minus 8  percentage points. All other percentage estimates in this report have  95 percent confidence intervals of within plus or minus 11 percentage  points, unless otherwise noted. Confidence intervals for other estimates  are presented along with the estimate where used in the report.
section_title: Nonsampling Error
paragraphs: In addition to the reported sampling errors, the practical difficulties of  conducting any survey may introduce other types of errors, commonly  referred to as nonsampling errors. For example, differences in how a  particular question is interpreted, the sources of information available to  respondents, or the types of people who do not respond can introduce  unwanted variability into the survey results. We included steps in both the  data collection and data analysis stages for the purpose of minimizing such  nonsampling errors.
We took the following steps to increase the response rate: developing the  questionnaire, pretesting the questionnaires with pension plan sponsors,  conducting multiple follow-ups to encourage responses to the survey,  contacting respondents to clarify unclear responses, and double keying  and verifying all data during data entry.
Although the overall response rate was 78 percent, we performed an  additional analysis to check whether our survey respondents had  characteristics that were significantly different from all sponsors in the  study population. To do this, we identified several sponsor characteristics  that were available for the entire study population and estimated these  population values using the survey respondents. For each estimate tested,  we found no significant difference between the estimate and the actual  population value.
We performed computer analyses of the sample data to identify  inconsistencies and other indications of error and took steps to correct  inconsistencies or errors. A second, independent analyst checked all  computer analyses.
section_title: Comparability of Survey Results with 2006 PBGC Results
paragraphs: In July 2008 discussions with PBGC staff and in their comments on this  report, PBGC indicated that it has calculated estimates of the number of  hard frozen plans on the most recently available Form 5500 data. Based on  Form 5500 filings received to date, PBGC currently estimates that 15.9  percent of plans were hard frozen in 2006. Our survey estimates are not  directly comparable with PBGC’s estimates for a number of reasons:    The GAO Survey is Based on a Statistical Sample - GAO survey  estimates, including those involving hard freezes are based on a  probability sample and is subject to sampling error. The PBGC  calculations are based on Form 5500 data filings which must be completed  by plan sponsors of PBGC-insured defined benefit plans.
The GAO Survey Focuses on Sponsors with Larger Plans - Our survey  specifically excluded “smaller” sponsors—those with less than 100 total  participants. Although leaving out such smaller sponsors excluded a  majority of all plans on the 2004 Form 5000 file, it only excluded about 1  percent of participants, and allowed us to survey a smaller sample.  However, if the rate of hard freezes was different for plans having fewer  than 100 participants than for larger plans, then we would expect that our  survey estimate would differ from an estimate developed from all plans.
The GAO Survey Focuses on Hard- and Soft-Freezes and Includes Post- 2006 Freezes - Our survey questionnaire used a definition of a hard freeze  that was intended to be substantively similar to the definition contained  with the Form 5500 instructions. However, our questionnaire also included  a broad range of plan freeze definitions as well as additional questions  pertaining to a sponsor’s largest frozen plan. The mode of data collection,  topical focus, format, item wording or item interpretation of our  questionnaire may influence respondents in different ways relative to the  applicable hard freeze character code on the Form 5500. One critical  difference that could lead to different estimates is that our survey captures  freezes that occurred since 2006. The 2006 Form 5500 only includes  information as of the end of the 2006 plan year.
Possible Differences in Actual Survey Respondents - While we generally  directed our survey to the individual we identified as being most  knowledgeable about the DB plans of a given sponsor, it may be the case  that the individuals responding to our survey are not the very same  individuals that also complete the Form 5500, possibly leading to different  responses.
Despite these differences in approach and methodology, some may wish to  compare PBGC’s estimate of 15.9 percent of plans were hard frozen in  2006 and our study population estimate of 23.3 percent of plans as hard  frozen among sponsors with 100 or more participants in all plans. Any  comparisons should be made with extreme caution for all of the reasons  noted above. Further, the 95 percent confidence interval for our estimate  ranges from 18.3 to 28.3 percent.
PBGC also calculated that, based on Form 5500 filings for plan year 2006  received as of July 2008, 0.75 million active participants out of 2.39 million  total participants were in frozen plans. As with the estimated percentage  of hard frozen plans, our numbers are not completely comparable, due to  differences in our methodologies Although our survey identified the active  participants affected by the sponsor’s largest frozen plan, we did not  specifically ask about total participants in the largest frozen plan. Our  questionnaire also asked sponsors to report the calendar year of freeze  implementation, while the Form 5500 data is reported on a plan year basis,  which can differ from the calendar year.
Another important difference is that PBGC data is not current and new  hard frozen plans and active participants affected by such freezes may yet  be identified. Some of these newly identified plans may be plans of  sponsors that reported freezes in our survey in 2007 or later. When we  removed hard frozen plans that occurred for a sponsor’s largest plan since  2006 and recalculated the number of active participants affected by hard  freezes, we estimate that 1.27 million active participants are affected by a  hard freeze in the sponsor’s largest frozen plan. As with all of our survey  estimates, this result is subject to sampling error. The 95 percent  confidence interval of active participants affected by the sponsors largest  hard frozen plan (removing post-2006 freezes) ranges from 0.75 million to  1.78 million.
section_title: Appendix III: Comments from the Pension Benefit Guaranty Corporation
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
paragraphs: Barbara D. Bovbjerg at (202) 512-7215 or bovbjergb@gao.gov.
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact above, Charles A. Jeszeck, Charles Ford, Isabella  Johnson, Luann Moy, Mark Ramage, Joe Applebaum, Craig Winslow, Gene  Kuehneman, Brian Friedman, Melissa Swearingen, Marietta Mayfield, Sue  Bernstein, and Walter Vance made important contributions to this report.