HP Freezes DB Plan, Sweetens Early Retirement Offers

February 22, 2007 (PLANSPONSOR.com) - Hewlett-Packard announced this week it would freeze contributions to current employees' defined benefit plans to shave costs, but will bump up its matching contribution to 401(k) plans from 4% to 6% for those employees who don't opt for early retirement.

According to a press release , the measure, effective January 1, 2008, will mean HP will receive an estimated one-time gain of approximately $500 million for freezing its plan. The company already announced a DB freeze for most of its U.S. employees in 2005, but the new freeze is now be extended to the rest of the company’s U.S. workers.

HP’s Chief Executive Mark Hurd sent an e-mail to employees saying that one-third of the company’s U.S. employees will be affected by the retirement-related changes, two people with knowledge of the e-mail told the San Jose Mercury News.

HP is also offering an early retirement option for eligible employees who don’t want to take advantage of the increased company match to their 401(k) plan. An early retirement incentive means U.S. employees whose age and years at HP total at least 65 by June 30 – an estimated 3,000 workers – will get extra pay if they leave by May 31.

Other changes to HP’s retirement offering include slimming down the pool of workers eligible for its subsidized retirement medical program to employees who are within five years of qualifying for the program by May 31. In order to qualify at all, retirees must be at least 55 years old and have worked for HP for at least 15 years.

In the future, employees will be eligible for a retiree medical program in which retirees pay the full costs of coverage but can use their Retirement Medical Savings Account to help pay premium costs, according to the Mercury News.