Which of the following best describes a situation when a pension plan is considered “frozen”?

• A. Employees can no longer accrue pension benefits
• B. Benefits have been significantly reduced
• C. The plan is terminated altogether
• D. New employees cannot join the plan

Answer: (A)

A pension plan is considered "frozen" when employees can no longer accrue pension benefits. This means that while the plan may still exist, and any previously earned benefits will be honored, no additional benefits will be accumulated by employees going forward. In this context, a frozen plan typically indicates that a significant change has occurred, possibly due to financial constraints or strategic business decisions, which prevent the ongoing accumulation of benefits based on service or salary increments.

Freezing a pension plan can be a strategic move by organizations seeking to manage future liabilities or to transition towards different retirement benefit structures, such as defined contribution plans. This change doesn't affect the benefits that employees have already accrued but does halt any growth in those benefits moving forward. This distinction is crucial because it helps to clarify the nature of the employees' entitlements under the pension framework.

In contrast, the options related to reducing benefits, terminating the plan, or restricting new employee access indicate different scenarios that do not accurately define a frozen pension plan. Reducing benefits involves a restructuring of what participants can expect, terminating a plan means completely ending the plan, and restricting new employees implies a change in eligibility rather than a halt in benefit accrual for existing employees. Thus, the condition of freezing a pension plan is specifically