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More Firms Phase Out Pension Plans
News10.net
December 5, 2005
As companies look to control costs, even financially healthy employers are freezing or terminating their pension plans in a sign the time-honored retirement system is increasingly being chipped away.
The trend drew the attention of President George W. Bush on Monday, who called on companies to protect workers' retirement benefits.
"My message to Corporate America is: You need to fulfill your promises," Bush said in a speech in North Carolina in which he called for tougher pension-reform legislation.
Hewlett-Packard this year announced that it's ending guaranteed pensions for new workers. Others altering plans include Sears, which said it will freeze pension benefits in 2006, and Motorola, which stopped offering pensions to new employees this year.
In 2004, 71 companies in the Fortune 1000 that sponsored traditional pensions froze or terminated their plans, according to a study released earlier this year by Watson Wyatt Worldwide, a human resources consulting firm. That represents an increase from 45 companies in 2003 and 39 companies in 2002.
When companies freeze a plan, they keep it in place but halt future benefits that would have been earned. Terminating a plan involves closing it down. More companies are also not offering pension plans to new hires. Driving the trend:
. Rising pension costs. Pension plans have suffered over the past five years because of declines in the stock market. Poor investment returns - coupled with a drop in interest rates - have companies re-evaluating whether to stick with traditional plans.
. Switching to (401)k plans puts more of the financial risk on employees. It's also a more predictable expense for companies that contribute a certain amount each year to those plans.
. Regulatory uncertainty. About five years ago, many major employers were switching to cash-balance plans, which provide employees with portable benefits that accrue more evenly over a career. With traditional pensions, the bulk of the retirement money accrues at the end of a worker's career.
That trend halted after some employees began filing age-bias lawsuits over the way their employers had made the pension conversions. As the courts debate the legality of cash-balance conversions, employers are getting tired of waiting, says Alan Glickstein, a consultant at Watson Wyatt.
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