What Is a Pension Freeze?

Pension Freezes Explained

A couple plans their pension income
Planning Your Pension Income. Photo: Yellow Dog Productions / Getty Images

When a company wants to discontinue offering a pension benefit to its employees, it may choose to freeze its pension instead of terminating it. When a company freezes its pension, new employees will not be allowed to enroll in the plan, and benefits provided to current participants may no longer grow.

Learn what a pension freeze is and why a company may decide to do it, plus things you need to consider if your own pension plan is frozen.

What Is a Pension Freeze?

When a pension is frozen, some or all workers who are currently covered by the plan will no longer see the value of their pensions increase. Any new employees not already covered by the plan will not be allowed to participate in the plan at all. However, the company must honor any benefits that have already accrued to retirees and any current participants.

General Electric (GE) froze its plan to new entrants in 2012, and in 2019, froze benefit increases for 20,000 covered employees. GE also offered a lump-sum buyout to 100,000 retirees who had not yet started receiving their payments.

How a Pension Freeze Works

There are a few broad ways that a company can choose to freeze a pension plan:

  • Hard freeze: A hard freeze means no new employees will be covered by the plan, and any employees currently covered by the plan will no longer see their benefits increase under the plan.
  • Soft freeze: A company can also choose a soft freeze. The most basic way to implement a soft freeze is to not allow new employees to participate in the plan, but allow currently covered employees to continue. A soft freeze may also mean that active participants no longer accrue benefits, but the value of the benefits already earned will increase with the employees' wages. Sometimes, only some current participants' benefits are frozen, while others continue to accrue benefits. This may be called a partial freeze.

Terminating vs. Freezing a Pension Plan

Terminating a Pension Plan Freezing a Pension Plan
The plan discontinues The plan continues, but benefits stop accruing
Plan must pay out all benefits Company retains liability to pay future benefits
60 to 90 days notice required At least 45 days notice required

A termination differs from a freeze in several ways. The most significant difference is that when a pension is terminated, it ceases to operate.

To terminate a plan, a company must pay out all accrued benefits. It can do that by offering a lump-sum payout or by paying an insurance company to take over the payment obligation. If the pension is underfunded and unable to pay all accrued benefits then the Pension Benefit Guaranty Corporation may cover the shortfall. A frozen plan, however, still continues to operate. It may even be unfrozen.

An employer is required to provide at least 45 days' notice to all affected employees before a freeze is to take effect. A pension termination notice must be given 60 to 90 days prior to the termination date.

Why Would a Company Freeze Pensions?

A company will often choose to freeze a pension plan to cut expenses and reduce its liabilities under the plan.

In addition to the direct costs of managing and operating a pension plan, a company is responsible for paying any benefits that accrue. This means that the company takes on the investment risk of the plan’s assets. In contrast, when a company provides a defined contribution plan like a 401(k), it has no liability to pay a promised benefit beyond the matching contribution. The investment risk is transferred to the plan participants.


When GE froze its pension, it was estimated to reduce its pension deficit by $5 billion to $8 billion and its debt by $4 billion to $6 billion.

What Should You Do If Your Pension Is Frozen

If your pension is frozen, you need to reevaluate your plans for retirement. While you will still receive any benefits you have already earned, you won’t be able to rely on the full value of the pension payment you had expected to earn when you first started.

If you are offered a lump sum, consider how you will save that money so it will still provide an income stream in retirement before you decide to accept it. To allow the money to continue to grow tax-deferred, you can roll it into an IRA. If you choose to take a lump-sum instead of annuity payments, then you also have to decide how to invest it.

You will also need to increase your retirement savings to make up for the reduction in your expected pension payout. If your company has a defined contribution plan such as a 401(k), consider increasing your contribution. At a minimum, make sure you are contributing enough to receive any employer matching contributions.

Key Takeaways

  • When a pension is frozen the company will no longer offer the plan to new employees, and current participants may not be able to accrue additional benefits.
  • A pension freeze can either be soft or hard, meaning a company may allow current employees to continue to earn benefits but bar new employees from participating, or no new employees are allowed to participate, and benefits stop accruing for everyone.
  • Companies freeze pensions to save costs.
  • If your pension is frozen, make sure to reevaluate your retirement plan. You will likely need to make some adjustments to stay on track.
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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. General Electric. "GE Announces U.S. Pension Plan Actions."

  2. Pension Benefit Guaranty Corporation. "Pension Plan Termination Fact Sheet."

  3. Internal Revenue Service. "Retirement Plan Participant Notices - When Future Benefit Accruals Will Be Significantly Reduced."

  4. Internal Revenue Service. "Retirement Plan Participant Notices - When a Plan Is To Be Terminated."

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