Nortel and Stride Rite Announce Move to DC Plans

June 30, 2006 ( - In efforts to control costs, Canada-based Nortel and US-based Stride Rite have announced plans to move employees from defined benefit pension plans to defined contribution plans.

In its press release, Nortel said, beginning January 1, 2008, employees currently in the Nortel Capital Accumulation and Retirement Program defined benefit pension plans in the United States and Canada will be moved to defined contribution retirement programs. The DC plans will have a new formula comprised of an automatic employer contribution equal to 2% of employees’ eligible earnings and a 50% match on employee contributions up to 6% of eligible pay, for a maximum 5% employer contribution.

In addition, according to the release, post-retirement health care benefits will be eliminated for employees who are not age 50 with five years of service on July 1, 2006. All future retirees who do not meet this age and service criteria will continue to have access to health care coverage at their own cost through Nortel’s preferred provider.

The company said it will provide financial education and modeling assistance to help employees through the transition.

Retirees in both the US and Canada will not see any change to their pension income benefit. Some US retirees will see a change in the cost-sharing formula for medical benefits.

Nortel said the changes are expected to result in an estimated annual reduction of $100 million in pension expense starting in 2008 and savings of more than $400 million in cash by the year 2012, reducing its unfunded pension liability deficit by approximately $400 million.

Stride Rite announced in its press release that its DB pension plan will be frozen as of December 31, 2006.

The company said it is making enhancements to its DC plan effective January 1, 2007. According to the release, the enhancements include a dollar-for-dollar match on employee contributions up to 6% of eligible pay and additions to the plan allowing participants to make full use of the statutory maximum deferral limits.

“These actions are being taken to provide Stride Rite with a more predictable and affordable cost structure for retirement benefits and will enhance our ability to compete,” said David Chamberlain, Stride Rite’s Chairman and CEO, in the announcement. “Many companies today, including most of the ones that we compete directly with, do not sponsor defined benefit pension plans. Furthermore, we believe that these steps are both prudent and appropriate at a time of uncertainty in the legislative and regulatory direction regarding defined benefit pension plans.”