During the past 2 years, many companies have decided to "freeze" benefit accruals under their pension plans. The list of companies doing this contains many household names such as Verizon, IBM, Coca Cola, and Hewlett-Packard. When a plan is frozen, the employees stop earning pension benefits credits, meaning that their pension benefit will no longer continue to grow. A plan cannot take away or reduce the benefits an employee has already earned, but is is allowed to freeze future benefit accruals. However, ERISA requires that, if a pension plan is to be frozen, the participants must receive written notice at least 15 days before the effective date.

The project recently resolved an interesting case involving a benefit freeze. Our clent was a 56 year old woman who had worked for a small employer in Connecticut from 1986 through January of 2003. The company sponsored a Money Purchase Plan, which obligated them to make specified contributions annually on each employee's behalf. We found that the company had stopped making contributions into the client's account in September, 2001. However, the company did not notify her of the freeze until November, 2002.

We filed a claim with the plan administrator, pointing out that, under case law, if a plan fails to comply with the law, it loses the right to freeze benefit accruals. The employee should continue to accrue benefits until the proper notice is sent. Our argument was a success, and, as a result of our efforts, our clent recently received an additional $10,900.00.

This case underscores the fact that problems can arise in defined contribution types of plans as well as traditional defined benefit plans. It is very important for employees to "keep their eye on the ball" when their retirement income is in an individual account such as the one in this case.