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Verizon Communications, the nation’s second-largest telecommunications company, is freezing its guaranteed pension plan covering 50,000 managers. Verizon’s decision to scale back benefits for some employees echoes similar steps taken in recent months by Hewlett-Packard, IBM, Motorola and other technology firms. IBM, which has one of the nation’s largest pension plans, is freezing the traditional pension plan effective 2008 and redesigning its 40l(k) plan. Employees hired since 2005 have been receiving an enhanced 40l(k). At IBM, no accrued benefits will be lost, but employees will no longer accrue benefits after 2007. Instead, IBM says, it will beef up the 40l(k) contributions for its 125,000 U.S. employees. After July 1, Verizon will match every dollar managers contribute to their 40l(k) up to 6 percent of their salary. Verizon may raise its match to $1.50 for every $1 contributed by the employee if the company reaches certain financial targets. Verizon’s 200,000 retirees and its 105,000 current union employees will not be affected by the change. IBM and Verizon said the uncertainty of the future costs of defined benefits prompted the change. “This is just a continuation of a trend amongst many companies that have moved away from defined-benefit plans as a principal source of retirement income,” said James Klein, president of the American Benefits Council. Klein notes half of the nation’s defined-benefit plans vanished in the past 10 years. From 1994 to 2004, the number of defined-benefit plans decreased from 58,000 to 29,000. Some pension experts believe companies that choose to cut pension benefits may find it harder to recruit workers. But others say the impact will be blunted if most companies follow suit. “If a company as large as Verizon goes in this direction it could encourage others to do likewise to the detriment of the retirement security of millions of American workers,” said Karen Ferguson, director of the Pension Rights Center, a nonprofit worker-advocacy group in Washington. Verizon pays 50 to 80 percent of the health-care premiums for retired workers who worked 15 to 30 years at the company. After July 1, workers with fewer than 15 years at Verizon will never become eligible for the retiree health benefits, although they will still have the option of paying for a health plan themselves. Source: The New York Times Related Sites:
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Fading
Fast: The Traditional Pension Plan
