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A Pension Freeze Can Reduce Retirement Income

January 12, 2026

Employer-sponsored pension plans are intended to provide a specific amount of retirement income to employees. But providers are increasingly deciding that funding these plans is no longer economically feasible. For this reason, pension freezes have become a topic of concern among employees who are counting on a pension to help fund their retirement.

How will a pension freeze affect you?

Benefits that have already been accrued will remain available at your retirement. However, if your pension is frozen, you will no longer accrue additional pension benefits going forward. Basically, the estimated pension amount determined at the time the pension is frozen will remain the same no matter how long you continue to work for the employer.

If your pension is frozen, what are your options?

Often, if your pension is frozen, the employer may offer the option to take your pension as a lump sum instead of receiving a monthly payment throughout retirement. If you accept the lump sum, you may roll that amount into a tax-qualified plan, such as an IRA or a new employer’s plan (if allowed by the plan). There will be no income taxes or penalties if you do the rollover properly, and your funds will continue to potentially benefit from tax-deferred growth.

However, you would assume responsibility for investment options and performance. Thus, it is important to be aware that you will probably have to rely more on your own savings and investments to fund your retirement. If your pension plan has been frozen, this would be a good time to re-evaluate your retirement objectives.

Distributions from traditional IRAs and most employer-sponsored retirement plans are taxed as ordinary income, except for any after-tax contributions you’ve made, and the taxable portion may be subject to a 10% federal tax penalty if taken prior to reaching age 59½ (unless an exception applies). If you participate in both a traditional IRA and an employer-sponsored plan, your IRA contributions may or may not be tax deductible, depending on your adjusted gross income. All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.

Disclaimers:

Providence Wealth Advisors, LLC (“PWA”) is a wholly owned affiliate of Providence Bank & Trust (“PB&T”). The investment products and services offered by PWA are independent of the products and services offered by PB&T and are not FDIC insured, may lose value, are not bank guaranteed and are not insured by any federal or state government agency. Investment products and services are offered by appropriately licensed investment advisor representatives, subject to the general oversight and authority of PWA.

To the extent that any client or prospective client utilizes any economic calculator or similar interactive device contained within or linked to the firm website, the client and/or prospective client acknowledges and understands that the information resulting from the use of any such calculator/device is not, and should not be construed in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from the firm or from any other investment professional.

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