According to an article in Business Insurance, on January 1, 2012, benefit accruals will stop for the plan’s 226 active participants. Instead, participants will begin earning benefits through a defined contribution plan that Crain started in 2004. Crain’s contributions to that plan, which are in addition to an existing profit-sharing plan that is offered to all U.S. employees, will be based on employees’ length of service.
Employees with fewer than six years of service will receive an annual contribution of 2% of pay, those with six to 10 years of service will receive a contribution of 4% of pay, and those with more than 10 years of service will receive 6%. The company last week also said its previous contribution of 8% of pay for employees with more than 15 of service would be eliminated, effective January 1, 2012.
Detroit-based Crain set up the defined contribution plan in 2004 to cover U.S. employees hired since January 1, 2004. When the Service Reward Plan was announced, current employees were given a one-time choice to enroll in the new plan or remain in the company’s traditional final-average-pay plan.
Company officials attribute the decision to freeze the defined benefit plan, which as of January 1 was 67.5% funded, to low interest rates, which boosts the value of plan liabilities and requires increased contributions, reports Business Insurance.
“The recent reductions in interest rates, and the announced policy of the Fed to keep interest rates as low as possible for the next few years, forces private pension funds to expect increasingly higher pension liabilities—and funding requirements,” said William Morrow, Detroit-based Crain executive VP.
“These higher funding requirements are coming at a time when companies still have not fully recovered from the strains of the recession,” he added.