Circuit City to End DB Plan, Beef up DC Plan

October 29, 2004 ( - Circuit City Stores Inc. is freezing its defined benefits pension plan, instead opting to increase funding for the company's 401(k) defined contribution plan.

Circuit City, the Richmond-based electronics retail chain, has lately found itself out of line with similar businesses’ pension plans, making it less competitive in the industry, according to the company. The chain will stop contributing to the pension plan on February 28, according to the Richmond Times-Dispatch, but will make sure the plan is still fully funded so those who are in the program will receive benefits.

The amount of benefits for employees who are vested in the program will not increase, and workers will simply retain accumulated benefits, according to the Times-Dispatch. For those who will retire in the next three years, however, pension benefits will continue to accumulate as usual.

With the funds saved by not contributing to the defined benefit plan, Circuit City plans to beef up contribution levels to its 401(k) plan. It will now match up to 4% of an employees salary (up from a current 1.25% matching contribution), and could offer to make optional profit-sharing distributions. The company will also enhance other programs, such as those that provide college tuition reimbursements. Matching payments will be made each payday, and no longer at the end of each plan year.

The trend of plans moving from defined benefit to defined contribution programs is an increasingly common one, as employers attempt to attract younger workers with the portable plans as well as shift costs away from the company.