According to a company press release employees will get to keep their benefits accrued until June 30, 2008, after which compensation growth in future years will continue to be included in the calculation of the DB component of the pension, but no further service credit will be earned.
The Canadian retailer will also cut post-retirement medical, dental and life insurance benefits for associates who have not met the eligibility criteria for these benefits by December 31, 2008.
Under the new DC plan, pension participants will be able to contribute a percentage of their eligible earnings within defined limits, with company contributions increasing as individual contributions increase. The contribution levels are subject to provincial regulations and statutory limits. Associates who become eligible to join the pension plan on and after July 1, 2008 will have the option to enroll in the defined contribution portion of the pension plan.
“This pension redesign will keep Sears Canada in step with the way retirement plans have evolved in Canada while still ensuring that a competitive plan exists for our associates that is in alignment with the Canadian retail industry,” said Dene Rogers, President and Chief Executive Officer, in the news release. “A key feature of the new plan design is that it allows associates to have more control over their retirement savings and be able to take advantage of increased investment options for which the plan now provides.”
Because of the changes, the retailer expects to have an accounting expense reduction of up to $25 million when fully annualized by the second half of 2008 and about $15 million to $20 million in pre-tax cash savings each year beginning in the second half of 2008.