As of April 1, 2006, salaried and certain hourly US employees will be transferred into a beefed-up defined contribution plan that covers salaried employees hired on or after July 1, 2003. Current retirees or former employees are not affected, the company said. The company also announced limits to its retiree health benefit program.
“We are committed to offering employees a competitive retirement benefit, but we also need to effectively manage future retirement expenses,” James Kirsch, president and CEO, said in a news release. “Achieving the right balance between competitive benefits and related costs is critical to securing the long-term future of Ferro.”
The changes include:
- Freezing the Company’s defined benefit pension plan. Employees who currently participate in the DB plan will stop accruing benefit service from March 31, 2006.
- Providing additional contributions to the Company’s defined contribution benefit plan. Beginning April 1, 2006, Ferro will begin making an annual contribution, ranging from 2% to 8% based on each employee’s pay and years of service, to the employee’s 401(k) account. Company contributions will be made whether or not the employee contributes to the plan. In addition, to encourage employees to save their own money, Ferro will continue to match employee contributions to 401(k) accounts with contributions up to 5% of pay.
- Limiting eligibility for the retiree medical and life insurance coverage. Only employees age 55 or older with 10 or more years of service as of December 31, 2006, will be eligible for post-retirement medical and life insurance benefits. Moreover, these benefits will be available only to those employees who retire by December 31, 2007 after having advised the company of their retirement plans by March 31, 2007.
The company estimates that the changes in retirement plans will reduce its retirement plan expenses by $30 to $40 million over five years.
Ferro’s move echoes similar steps taken by numerous other firms in recent months (See GM DB to DC Pension Move among Belt-Tightening Steps ).