A company news release said the move would not affect current employees or retirees who would continue to have access to both the DB and the 401(k) plans.
Under the new plan, the company will make a
contribution of 3% of an employee’s annual salary and
bonus to the 401(k), whether or not the employee
contributes. In addition, the company will match the
first 6% of salary that an employee contributes to the
“We have very competitive benefit plans at Alcoa, and we periodically evaluate the level of competitiveness to ensure our plans are in line with the marketplace,” said Paul Thomas, Executive VP, People, ABS, and Culture, in the news release. “We will move to a defined contribution system for new hires – a contribution to a 401(k) plan of 3% of salary and bonus, in addition to our match programs on the first 6% contributed – that gives employees significant flexibility and portability of their retirement savings.”
The changes will not impact current Alcoa employees or retirees. “We will continue to monitor the marketplace and make appropriate modifications to our benefits programs that maintain our competitiveness,” said Thomas. While the elimination of the defined benefit plan for new hires will limit long-term liability for the company, there is no immediate impact on the company’s profitability.
Workers covered by collective bargaining units and certain non-bargained hourly workers are also not impacted by the change, Alcoa said.
A Continuing Trend
Other companies announcing changes in their DB plans include:
- IBM, which announced a major redesign of its retirement plans, announcing plans to freeze current pension benefits, while significantly enhancing its 401(k) offerings, effective in January 2008 (See IBM Beefs Up 401(k), Backs Off DB – Come 2008 ).
- Northwest Airlines, where pilots have agreed overwhelmingly with a proposal to freeze their defined benefit plan and move to a defined contribution program (SeeNorthwest Pilots OK DB Plan Freeze).
- textile giant Milliken & Co., which announced its 9,300 employees will no longer accrue pension benefits (See Textile Giant Announces Pension Plan Freeze).
- Verizon Communications Inc., which will freeze its pension plan for managers and increase matching contributions in its 401(k) plan instead (See Verizon Announces Pension Plan Freeze ).