posted on May 14, 2003 02:35:21 PM new
Companies cut back on retirement plan benefits
Disappointing earnings and a soft economy are driving companies across the USA to chip away at pension benefits and 401(k) matching contributions.
For the first time in years, companies must shore up underfunded pension plans. That's taking a toll. About 8% of large and midsize corporations are considering getting rid of their pensions entirely, according to a survey of 174 executives released this week.
An additional 6% are contemplating changes that would reduce future pension contributions, according to Hewitt Associates, which conducted the survey.
Delta Air Lines, for one, is switching its pension to a less expensive cash-balance plan for non-pilots. Savings: about $500 million over five years.
Retirement plan cuts put pressure on workers to save more on their own. But many companies say they have little choice. Three years of bear market stock losses drained pension surpluses. Last year, 100 of the biggest corporations with pension plans added $34 billion to their pensions, says consultant Milliman USA.
Public pension plans are also strapped. The Oregon Legislature is considering ways to fix the $16 billion shortfall in the state's pension system, including a plan to convert the pension to a 401(k)-type of plan for new workers.
Some companies with a traditional pension and a 401(k) plan have opted to save money by shrinking their 401(k) matching contributions. Textron this month temporarily suspended its matching contribution for non-union workers. The company, which owns Cessna Aircraft, had matched 50 cents for each dollar that workers contributed, up to 10% of salary.
The 401(k) matching contribution is among the most visible and popular employee benefits, says Michael Weddell, retirement consultant at Watson Wyatt Worldwide. Participation in 401(k) plans is higher at companies that offer a matching contribution.
An upturn in the economy and on Wall Street could help stem benefit cuts and prompt companies to restore 401(k) matches. But for now cutbacks continue:
Prudential Securities, a division of Prudential Financial, dropped its 2002 matching contribution because of weak earnings. The discretionary match is linked to its performance.
Goodrich will halve its match starting next month. The new rate will be 50 cents for each $1 of contribution up to 6% of pay.
Charles Schwab in March suspended its generous match. Schwab had contributed $500 for the first $250 a worker saved, and then $1 for each $1 up to 5% of salary.
Experts say workers should try to boost their own savings to make up for reductions — even if they have to wait until their next raise. Most important, they shouldn't overreact and drop out of the plan.
"They don't want to shortchange their future," Weddell says.
posted on May 23, 2003 07:53:25 AM new
The other problem is that lawmakers (we can blame both parties for this, most of the measures passed with overwhelming majorities) have been easing up on the rules of fiscal accountability for pension funds. Many of these companies have been quietly raiding funds (essentially stealing from their employees - remember, these pensions are part of the employees' negotiated compensation) and expecting the market to bail them out. They're now facing the prospect of Boomer-time and the cupboard is bare.
Expect to see a spike in major firms' pension plans going belly-up rather than pay. The result will be another nose-dive in the stock market and yet MORE pension funds becoming insolvent.
