How ‘Frozen’ Pension Plan Works

Under Farmers’ pension plan, employees’ retirement benefits are based on a percentage of their average earnings for the five years before their retirement, multiplied by their years of service.

A 65-year-old employee whose earnings averaged $25,000 per year and who had worked 20 years would receive a benefit of $603.40 per month. Farmers’ policy froze the worker’s pension at that level, no matter how much longer he worked or how much his salary increased.

Now assume the employee continued working until age 70 and received conservative wage increases that boosted his average earnings 25%, to $31,250 per year.

With credit for the pay raises and the additional five years of service, the worker’s monthly pension benefit would climb to $975.50--an increase of 62% beyond the benefit “frozen” at age 65.