Sun, Dec 11, 2005 page11

• Healthy US firms freeze pensions to reduce costs

  `BETRAYED' Verizon decided to freeze the pensions of 50,500 of its managers in the US, joining the growing ranks of profitable firms cutting back on staff expenses

  • AP
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  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 firm's announcement this past week that it will freeze the pensions of 50,500 managers in the US is nothing but an employer breaking a decades-old promise to its own people.

  "We're all good people here," said Maureen Aeckerle, a 25-year Verizon veteran in Maryland, her voice breaking. "And to be treated this way is just unacceptable."

  Aeckerle, who started as an operator and went back to school for undergraduate and masters' degrees to climb to her current job, said she had been thinking about early retirement, less than five years away. But her pension will be frozen just as she is reaching the point in her career when benefits are sweetened, she said.

  "I was crying for two days because I just felt so betrayed. I just felt they look at us as being so worthless," the 49-year-old Aeckerle said.

  Aeckerle and her co-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 US' 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 US managers who now receive them, while boosting contributions to workers' 401(k) plans. The pensions will be frozen on June 30 next year, but bolstered so that each worker 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 US$3 billion over the next decade, Verizon said.

  The company earned nearly US$1.9 billion in the most recent completed quarter, and US$7.8 billion in all of last year.

  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 US 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.

  Until recently, "there was a very strong correlation between the freezes and terminations we looked at and companies under severe financial pressure," Glickstein said.

  "I think it's a good possibility we will be seeing more examination of plans and I suspect coming out of that will be some of those [healthy companies] saying we want to go in a new direction," he said.

  For some companies, that direction could well mean freezing pension plans. 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.
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