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Verizon to Cut Manager Pensions
By Dionne Searcey And Jesse Drucker, Wall Street Journal
December 6, 2005
In a push to become leaner, Verizon Communications Inc. announced sharp cuts to its pension plan for managers, which it says could save as much as $3 billion over 10 years.
Under the plan, about 50,000 managers will stop earning pension credits after June 30, 2006, and managers hired after the start of the year will receive no pension benefits at all. Managers who have been at the company fewer than 13.5 years also will no longer receive subsidized retiree medical benefits.
Changes to the plan will not affect current retirees, and employees will retain pension benefits they have already earned.
Partly to compensate for the cuts, Verizon is planning to increase its contribution to managers' 401(k) plans. Currently if employees contribute 6% of their pay, the company contributes 5%. When the new plan goes into effect it will contribute as much as $1.50 for every dollar the employee puts in, up to 6% of the employee's salary. The new 401(k) match also applies to MCI Inc. managers who will join the company once Verizon's acquisition of MCI is completed in coming weeks.
To recognize the changes, Verizon will take a pretax net charge of $97 million in the fourth quarter of this year.
Neither management employees of Verizon Wireless, of which Verizon owns a stake, nor management employees of MCI currently have pension or retiree medical benefits.
"This restructuring reflects the realities of our changing world," Verizon Chairman and Chief Executive Ivan Seidenberg said in a draft of a news release. "Companies today, including many we compete with, are not implementing defined benefit pension plans or subsidized retiree medical benefits."
Verizon's new pension plan comes as the phone giant is trying to reshape itself from a stodgy utility into a growth company. Verizon announced yesterday that it wants to shed its phone-directories business in a deal that could be valued at more than $17 billion. The company plans to use the proceeds partly to finance a massive upgrade of its network intended to bring fiber-optic cables to millions of homes.
Investors have punished the company for its fiber plans and its $8.5 billion acquisition of MCI, sending its shares down more than 20% since January. The immediate cash generated by a sale or spinoff of the directories business could help assuage those investors. Verizon shares were down 16 cents at $31.71 in 4 p.m. New York Stock Exchange composite trading yesterday.
For Verizon, shedding the directories allows it to leave behind low-growth businesses, such as land lines, for the higher-growth, more competitive world of television and Internet services. By selling the unit, Verizon could lighten its $38 billion debt load, a key move for a company that is spending an estimated $20 billion on upgrading its copper network.
Yesterday's announcement on the directories business prompted speculation on Wall Street that Verizon might use the proceeds to help buy out its minority partner in Verizon Wireless. Vodafone Group PLC owns roughly 45% of that business, the country's second-biggest cellular carrier, and the main growth engine at Verizon. However, investors value Vodafone's stake at roughly $40 billion, and Vodafone would hold the leverage in such a negotiation.
Early last year, Vodafone made clear its desire to operate its own U.S. cellular carrier when it unsuccessfully bid on AT&T Wireless Services Inc. If it had won, it would have exited its relationship with Verizon.
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