WSJ: Companies Lock Younger Workers Out of Pensions

Companies Lock Younger Workers Out of Pensions
The Wall Street Journal 07/26/05
author: Kaja Whitehouse / Dow Jones
(Copyright (c) 2005, Dow Jones & Company, Inc.)

An increasing number of companies are "freezing" their pensions to exclude new employees or workers under age 40.

Last week, Hewlett-Packard Co. said it will freeze pension benefits based on age and tenure starting next year. Workers whose combined age and tenure equal a minimum of 62 will keep their pension benefits intact. Everyone else will lose the potential for further accruals, but will retain the benefits already accumulated. Federal law protects workers from losing a benefit they have already earned, but not from losing the promise of future benefits.

Companies that have taken similar actions in recent years include NCR Corp., Sears Holdings Corp., International Business Machines Corp. and Motorola Inc. IBM and Motorola both shut their defined-benefit plans to new workers at the start of 2005. NCR froze pension benefits for workers under age 40 beginning last September and stopped offering its pension plan to new hires. Sears also stopped benefits for new workers and current employers under age 40 in 2004, but then changed course after its merger with Kmart. Sears announced this year that it will freeze plan benefits for all employees beginning in 2006.

Until recently, companies looking to freeze their pensions would generally have considered freezing them and then converting them to cash-balance plans, says Craig Copeland, a senior research associate with Employee Benefit Research Institute in Washington, D.C. The legality of cash-balance conversions is currently unclear, however, and employers are fearful of taking that route.

Another article on the elimination of pensions as a benefit at some major companies.