Companies Gain Little From Pension Switch

BOSTON (TheStreet) -- Companies that have shifted employees to 401(k) accounts from pension plans don't necessarily gain much, according to international consulting firm Watson Wyatt.

A review of 82 publicly traded companies that froze or closed their pension plans between 2003 and 2007 found there was an insignificant or negative effect on their stock prices. Contrary to previous research and assumptions, Watson Wyatt said that in 71 of 82 cases, companies' share prices didn't change much in the 23 days around an announcement of retirement-plan changes.

"Freezing a plan may produce some accounting gains, but it will not provide companies with long-term cash-flow relief -- either on an absolute level or volatility -- for many years," says Mark Warshawsky, director of retirement research at Watson Wyatt. "Also, even if these freezes do lead to savings, there will be no immediate positive effect on firm value. It could even become diminished in the long run if employees begin to view the firm as an uncompetitive employer in light of its shrinking commitment to retirement and its transfer of risk to employees."

In an analysis of pension plans released late last month, the firm found that 190 members of the 2009 Fortune 1000 list have frozen defined-benefit-pension plans, compared with 169 companies last year and only 45 six years ago.

Industries with higher defined-benefit-plan sponsorship rates, such as utilities and manufacturing, are less likely to freeze a plan. An opposite trend holds true. Almost half of the direct-benefit-plan sponsors in the financial-services industry and a third in the automobile industry have frozen plans.