Your pension when the unexpected happens

What if your pension freezes?
What if your pension freezes? © Bruce Rolff/

When a pension is frozen, it usually means participating employees can't accrue any more benefits. Federal law protects you from losing what you already have earned, but because pensions are based primarily on earnings during the last few years you work, a freeze means you will collect a greatly reduced benefit.

Alan Glickstein, a senior retirement consultant at Towers Watson, offers this illustration, which reflects a typical pension formula:

Annual pension equals average salary for the five consecutive highest-paid years times the number of years of employment times an accrual rate of 1 percent.

For most people, the highest-paid years are the last five years of work. If your pension is frozen at age 50 after 20 years of employment and your pay averages $50,000 over the last five years you worked when the pension was active, when you retire, you'll get a pension of $10,000 a year. However, if you work an additional 15 years and end up averaging $77,000 a year near retirement, your pension would have risen to nearly $27,000 a year had it not been frozen.

Glickstein says not all freezes are the same. A soft freeze generally eliminates the plan for future employees only. Other companies announce a freeze but delay its effective date for five, 10 or even 20 years for current employees, giving them time to adapt.


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