"According to Towers Perrin, 48 percent of the companies surveyed are likely to freeze their plans if they produce a hit to earnings; 43 percent are likely do so in response to a rise in cost of capital or a lower credit rating; and 33 percent will probably take action in the face of a dropping share price. Thirty-two percent of the companies surveyed had already closed their plans to new entrants. (Towers Perrin didn't specify whether a "freeze" refers to halting current employees from receiving new credit for future benefits, refusing pension benefits to new employees, or both.)
"In general, the trigger for freezing plans appears to be a drain on cash flow so severe that other cherished corporate programs are threatened with cuts. Things have gotten serious when "the pension plan becomes a competing interest for cash within the organization," says Cecil Hemingway, who heads the pension-legacy solutions department at the actuarial and risk-management-consulting firm. In particular, pension plans would not be allowed to continue if they began to drain funds away from share buyback programs or investments in plant and equipment, he adds.
"And if Congress passes a law mandating that plan sponsors fund 100 percent of pension obligations, as it's likely to do, then many companies could be freezing their plans soon. Both Senate and House versions of the legislation reportedly demand full funding, a measure that President Bush is likely to support. Under current law, pension sponsors must fund 90 percent of their plans' obligations."
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