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Alcoa Curbs Pension Costs By Ending Fixed Benefits for New Managers

Posted on: Wednesday, 18 January 2006, 21:00 CST

By Len Boselovic, Pittsburgh Post-Gazette

Jan. 17--Alcoa yesterday joined the lengthening list of companies seeking to curb retiree benefit costs, saying it won't offer a pension plan to most salaried U.S. workers it hires, effective March 1.

Instead, new hires will receive a beefed up 401(k) retirement plan benefit, a sweetener other U.S. companies have offered when reducing or eliminating their pension programs.

Alcoa said the new policy will not affect the pension benefits of current salaried workers or retirees. Nor will it affect union workers and certain non-union salaried workers in the United States who will continue to be covered by the company's pension plan.

"We will continue to monitor the marketplace and make appropriate modifications to our benefits programs that maintain our competitiveness," Alcoa Executive Vice President Paul Thomas said.

Alcoa's attempt to rein in retirement benefit costs is not as drastic as measures being implemented by IBM Corp. and Verizon Communications, which are freezing their pension plans. That means employees will keep whatever pension benefits they have earned as of the date the plan is frozen. After that date, the size of their monthly retirement check won't increase, no matter how long they work for the company.

Verizon is freezing its management pension plan June 30, while IBM employees will stop earning additional benefits on Dec. 31, 2007. Alcoa's salaried workers will continue earning pension benefits after March 1. They can also participate in the 401(k) plan.

Pension plans, also known as defined benefit plans because workers know the size of their retirement savings benefit, were once the mainstay of company-offered retirement benefits. They have been giving way to so-called defined contribution plans like 401(k) accounts, where the onus for saving and investing retirement money wisely falls on workers, not the company. Alcoa said nearly 65 percent of employers offer a 401(k) plan as their primary retirement benefit.

Companies say they are under pressure from U.S. and foreign competitors who aren't burdened with pension benefit costs. Moreover, analysts predict attempts by Congress to reform pension regulations will prompt more companies to follow Alcoa, Verizon and IBM, rather than comply with the costly new rules.

Alcoa said the change will limit its long-term liabilities but won't have an immediate impact on its profitability, which has been disappointing in recent months. Last week, the world's largest aluminum maker said its 2005 net income fell 6 percent last year to $1.2 billion as rising energy and raw materials costs offset cost-cutting and higher aluminum prices.

The company has pension plans covering most U.S. salaried and union workers. Alcoa contributed $383 million to its major pension plan last year, Chairman and Chief Executive Alain Belda told analysts last week. That left its pension plans about 85 percent funded, meaning Alcoa has set aside 85 cents for every $1 in retirement benefits workers have earned.

For U.S. salaried workers hired March 1 or later, Alcoa will contribute 3 percent of their annual salary and bonus to the company's 401(k) retirement account. The contribution will be made whether or not a salaried worker contributes to the 401(k) plan.

If they do contribute, they will be eligible for Alcoa's current match: 50 cents to $1 on the first 6 percent of their pay contributed, spokesman Kevin Lowery said.

Alcoa hired the firm Financial Engines in 2004 to give 401(k) participants free advice. Using the Palo Alto, Calif., company's software, workers can plug in their current holdings, their contribution rate, retirement date and other information and get an idea of how likely they are to hit their retirement savings goals. Workers can also pay Financial Engines for advice on how to invest their retirement money.

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Copyright (c) 2006, Pittsburgh Post-Gazette

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Source: Pittsburgh Post-Gazette

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