Choice also loomed large as a factor in the 2003
introduction of Federal Express Corp.'s cash balance plan.
"Our objective was to have employees make an electionnot
which election they made, but that they made an election,"
says Beth Ewing, staff director, retirement plans. The
company says it does not anticipate any significant savings
in the short term but that, in the long term, the new plan
will have a positive impact on the company and enable it to
make a more consistent, level contribution.
When FedEx announced the new plan to employees in
mid-February, it kicked off a multifaceted communications
campaign that was "absolutely not" aimed at getting FedEx's
129,000 employees eligible to make a choice into the new
plan, Ewing says. "[The goal was] to give information for
them to make the right choice," she says. "We would not be
giving them a choice if we had some other objective." New
employees as of June 1, 2003, automatically go into the new
"At an employer the size of FedEx, people learn in
different ways," Ewing says. "To be successful, we had to
communicate often, in different ways, and in different
mediums." After mailing an announcement to employees' homes
about the new plan, the company immediately set up a
pension hotline for employees to call in with
FedEx also made internal broadcasts from its in-house
television studio and trained internal staffers to have
meetings with other employees.
The communications campaign did not have a slogan, but
Ewing says it was distinctively "branded." The signature
elements included very bright colors: orange, yellow, and
blues. "Everything had these bright colors and employees'
faces and the FedEx corporate logo," she says. "Employees
said that they liked that, because they get so much mail,
and a lot of it is junk mail."
Twenty-five percent of employees opted for the new plan.
The two plans' formulas differ in that, under the
traditional defined benefit option, most employees accrued
a larger portion of their total benefit later in their
careers, while benefits accrue in the portable pension plan
at a more uniform rate throughout employees' careers.
Employees had 90 days to choose between the two plans.
Early on, they received a "choice kit" with a personalized
statement comparing their options, a guide to the two
plans, and a comprehensive set of questions and answers.
They also could use a Web tool to change assumptions such
as their future salary increases and interest rates, then
create adjusted scenarios to see how the new plan would
affect them in subsequent years. Those uncomfortable with
using the Web tool could do customized modeling with a
voice-response system or via the pension help line.
FedEx also did plenty of employee focus groups and
surveys. "We were constantly taking the pulse of our
employees as we were rolling the new plan out," Ewing says.
For instance, the company had a sample of employees test
the Web tool before rollout and made it simpler based on
their reactions. In focus groups, employees identified the
three elements that had been most helpful to them in making
a choice: the personalized statements, the Web site, and
employee meetings. Since FedEx gave employees a choice and
a personalized comparison statement, the company says that
the focus groups did not reveal an employee concern that
they might get less money under the new plan.
Despite their new plans' apparent success, FedEx,
Honeywell, and Kodak feel the uncertainty that still
surrounds hybrid plans. A big part of their unease has to
do with the regulatory environment. "Here it is 2004, and
we still do not have conversion rules," Zurawski notes.
"There are seven million workers in hybrid plans right
nowplans that are in some sort of legal limbo in terms of
whether they are legitimate."
William Sweetnam, benefits tax counsel at the US
Department of the Treasury, understands the feeling. "You
have got one court that says they are inherently
age-discriminatory, and you have Congress not letting us
finalize the regs and saying this is not
age-discriminatory," he says. "It is not surprising if plan
sponsors look at that and say, 'I am uncomfortable because
it is an open issue out there.'"
Treasury had put out proposed regulations stating that
cash balance plans are not inherently age-discriminatory,
but it cannot finalize those rules until Congress blesses
hybrid plans. So, in June, the agency announced that it was
withdrawing the proposed regulations to give Congress a
chance to review the Bush administration's cash balance
proposals and come up with legislation. "At this point,"
Metras says, "we would have to have Congress pass
Moreover, while some in Congress and elsewhere may
question Treasury's authority to deem the plans not
age-discriminatory, "We do have the authority to say that,"
Sweetnam contends, "because we interpret the
age-discrimination laws for defined benefit plans. They
just do not like our interpretation."
Honeywell is working with other companies to help get
legislation introduced in the fall, Zurawski says, along
with lobbying groups like the American Benefits Council and
The ERISA Industry Committee. "This year or next year is
the timeframe [for passage]," he says.
Asked what she wants legislation to include, Metras
says, "I would like to see a validation of the hybrid
designthat there is no presumption that a conversion from
a traditional plan is age-discriminatory. Perhaps there
could be some safe harbors, like choice."
The Pension Rights Center's Friedman says, "Any
legislation would have to, at minimum, ban wearaway,
protect the legitimate benefit expectations of older
workers, and set appropriate standards for hybrid plans in
the future." She declines to comment further for now about
what standards she would like to see.
Metras believes "it is not really likely" that
legislation can pass in 2004. However, Sweetnam is more
optimistic, pointing to recent Congressional hearings as an
indicator that lawmakers may be willing to move forward.
"Some people are realizing that plan sponsors can terminate
their plans to freeze their plans," he says.
While the Kodak plan continues as usual, Metras wants to
move beyond the ambiguity. "Kodak was held up as a model
company, even by critics of cash balance plans," she says.
"So, the model company should have some certainty."