Even profit-makers are freezing pensions
NEW YORK – The memo to workers made the changes sound almost upbeat: “Your Work, Your Rewards, Your Verizon,” it read.
But to some workers at Verizon Communications Inc., the company’s announcement this past week that it will freeze the pensions of 50,500 managers is nothing but an employer breaking a decades-old promise to its own people.
Verizon workers are hardly alone. More large companies are moving to freeze or terminate their pension plans. While most companies that have done so up to now have been struggling financially, a growing number resemble Verizon – healthy, profitable companies looking for another way to cut costs and reduce risks.
Last year, 71 of the nation’s 1,000 largest companies froze or terminated pension plans, up sharply from 45 in 2003, according to consulting firm Watson Wyatt Worldwide. Nearly all were freezes, in which workers do not earn any new pension benefits, but retain the right to eventually retire with benefits already earned.
Verizon’s move drew attention partly for its scope. Many companies have capped pensions incrementally, grandfathering older workers or current employees, while cutting off pension benefits for new hires or younger members of the ranks.
Verizon said it would freeze pensions for all U.S. managers who now receive them, while boosting contributions to workers’ 401(k) plans. The pensions will be frozen June 30 but bolstered so that workers will be left with the benefits they would have accrued through 2008.
The move, together with cuts in retiree health care benefits, will save about $3 billion over the next decade, Verizon said.
The company earned nearly $1.9 billion in the most recent quarter and $7.8 billion in all of last year.
The pension freeze has left many Verizon workers “mad, angry, outraged,” said Janice Winston, a former Verizon engineer who was an outspoken critic of the company’s effort a decade ago to cut pension benefits. “The people I’ve talked to are afraid. They don’t know what’s going to happen next.”
A Verizon spokesman, Bob Varettoni, said the cuts will reduce benefits so they are on par with those offered by competitors. Asked to respond to workers’ who say Verizon has broken its word, he said the company could not afford to maintain the status quo when everything about its business is rapidly changing.
Verizon’s freeze comes as nearly all companies offering traditional pensions – not just those in financial difficulty – are rethinking the costs, risks and reasoning behind their retirement plans, said Alan Glickstein, a pension consultant with Watson Wyatt.
The process is being driven by concerns about measures before Congress that would tighten restrictions on companies that don’t fully fund their pension plans and increase premiums companies must pay to the federal government to insure their plans, he said. At the same time, accounting regulators are looking at rule changes that would force companies to report their pension liabilities on their balance sheets.
In the past year or so, employers including Sears Holding Corp., NCR Corp. and Circuit City Stores Inc. have frozen pension plans for all or some of their employees.
When Abbott Laboratories spun off its hospital products business last year, workers at the newly dubbed Hospira Inc. – many who had spent their entire careers with Abbott – saw their pensions frozen and their retiree health care benefits eliminated.
In one of the most recent moves before Verizon’s, computer maker Hewlett-Packard Co. said in July that it would freeze pensions for all workers except those whose age and years of service added up to at least 62. The company would not disclose how many of its workers the move will affect.
Pension advocates say such changes amount to a compensation cut for experienced workers who devoted years to companies knowing that a pension was part of the deal.
“What’s changed over the years is that companies and workers have a very different understanding of what a pension promise is. From a company point of view, its ‘just because we said we’re going to give this to you, doesn’t mean we can’t change our minds,” said Karen Friedman, policy director for the Pension Rights Center, an advocacy group.
Employees of Verizon affected by the freeze said the move will have a devastating impact on their future retirements. One New York manager with 16 years at the company, who asked not be identified, said under the old pension plan he would have been eligible for a $700,000 lump sum at retirement. Now, he believes his pension will be frozen with a balance of $70,000, although it will build interest.
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