NCR Phasing Out DB Plan

June 7, 2004 ( - NCR Corp has rung up the end of its corporate defined benefit plan, choosing instead to offer only 401(k) plans to about 9,200 U.S. employees.

Effective September 1, NCR workers under the age of 40 will be entitled to the “enhanced 401(k) match,” but will no longer accrue benefits under the existing defined benefit pension plan.   Also, employees over the age of 40 and will be grandfathered in NCR’s existing U.S. pension plan, the Dayton-Ohio based company said in a Form 8-K filing with the Securities and Exchange Commission (SEC).

Under the “enhanced 401(k) match” NCR will increase its matching contribution to 5% of the employees’ contributions, up from 3.75% currently.    Employees grandfathered in will be provided a choice of:

  • continuing to accrue benefits under the existing pension plan and retaining the current 401(k) match
  • discontinuing further accruals under the existing pension plan in favor of an enhanced 401(k) match.

NCR made the move away from a defined benefit system as “part of the company’s plan to lower its cost structure and make the company more competitive.”   The impact of the move will not be immediate.   “Given the timing of the announced changes, the Company does not expect a meaningful reduction in its 2004 pension expense,” NCR said in the filing.   However, the company projects that by 2007, NCR’s U.S. pension expenses will be reduced to “approximately zero.”   Guidance on the company’s 2005 pension expense will be provided at the end of the year.

“The company believes that these changes, which will not affect current retirees and their pensions, strike the right balance with respect to these objectives,” NCR said in the filing.

The changes announced at NCR only apply to the company’s U.S. pension plan.   NCR’s international pension plans are likely to comprise roughly 40% of the total global pension expense for the firm in 2004, increasing in future years, the filing said.   However, NCR said it is considering similar changes for its international workers.

Other Reductions

Similar changes have been announced in the past year at Sears Roebuck & Co (See  Sears Unwraps Compensation Changes ) and Rockwell Collins Inc (See Rockwell Collins Amends Pension Plan ).    Looking back even further, the American Benefits Council (ABC) said in its report Pensions at the Precipice: The Multiple Threats Facing our Nation’s Defined Benefit Pension System that since 2001, 23% of Fortune 1000 companies have announced their decision either to freeze or actively consider freezing their defined benefit plans.

In fact, noting the decline in defined benefit plan sponsorship in their policy paper, ABC provided policy makers some policy actions to address the major threats outlined in the report (See ABC Points to Significant Threats Endangering the DB System ).   This in attempt to prevent companies and employers from being “flung into the culvert where defined benefit plans simply are no more.”