With an eye toward lowering retirement benefit expenses, more large employers have frozen their pension plan, but news of a freeze will not increase a company’s stock price, suggests research by Watson Wyatt.

In 2009, 190 companies on the Fortune 1000 list have a frozen defined benefit pension plan, compared with 169 companies last year and only 45 six years ago, the HR consulting firm reports. The rate of DB plan sponsorship in the Fortune 1000 dropped slightly to 61% in 2009 from 63% in 2004.

Given the economic crisis, frozen pension plans are the norm in the financial services and automobile industries, with nearly half of the DB plan sponsors in the financial sector and one-third of the plan sponsors in the automobile industry have frozen DB plans.

“As companies in industries that have suffered through the crisis struggle to keep their heads above water, freezing or closing pension plans may seem like an effective ways to cut costs,” says Alan Glickstein, senior retirement consultant at Watson Wyatt. “However, this strategy could come with substantial hidden costs – for employers, who could face increased difficulties in managing the retirement of their workforces, and for employees, who could face reduced retirement resources as a result of a frozen pension plan or a reduced 401(k) match,” he adds.

In a separate Watson Wyatt analysis, researchers found that freezing pensions does not have a positive effect on companies’ market value. The research involved 82 publicly traded companies that froze or closed their pension plans between 2003 and 2007.

The analysis concluded that announcing the closing or freezing of DB plan will have little effort on increasing a company’s stock price. However, in the cases where such an announcement did have a statistically significant outcome, the employer’s stock price decreased, researchers note.

“Freezing a plan may produce some accounting gains, but it will not provide companies with long-term cash flow relief (either 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, which 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,” he adds.

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