Verizon Communications Inc. is the latest old-line company to phase out its traditional pension plan.
The telecom giant announced that beginning July 1, it will no longer offer its defined-benefit plan to management employees. The new policy affects about 50,000 individuals, according to The New York Times. Benefits of unionized workers will not be affected by this latest announcement, though the Times suggested that the cutback for managers may herald Verizon’s stance toward labor in the next round of contact talks. (Senior editor Marie Leone wonders, though, whether “blame the unions” is a naïve approach.)
Verizon managers, who will retain pension benefits they have already earned, will also be eligible to continue to grow into their early retirement pensions. They will receive an 18-month enhancement to the value of their pension and retiree medical benefits. In addition, Verizon will increase the company match for the managers’ 401(k), both for current managers and for MCI managers who join Verizon after the close of the planned merger.
On the other hand, Verizon will no longer provide additional service credits toward the company’s subsidy of retiree medical benefits. Management employees who do not have 15 years of service (after the 18-month enhancement is factored in) will not be eligible for a company subsidy for those benefits.
The company expects to save $3 billion over the next 10 years.
“These changes will provide Verizon with a more affordable benefit cost structure, which enhances our ability to compete,” said chairman and chief executive officer Ivan Seidenberg, in a statement. “The changes will also provide employees a transition to a retirement plan more in line with current trends, allowing employees to have greater accountability in managing their own finances and for companies to offer greater portability through personal savings accounts.”
Seidenberg also noted what a growing number of senior executives have acknowledged: Many companies, Verizon included, are competing globally with well-financed companies that are relatively younger and are not saddled with the huge costs of a defined-benefit pension plan. “Companies today, including many we compete with, are not adopting defined benefit pension plans or subsidized retiree medical benefits,” he said.
In 2004, 71 companies in the Fortune 1000 terminated their pensions plans, compared with 45 in 2003, according to CNBC, which cited Watson Wyatt.