to End Traditional Pensions For Managers
By Arshad Mohammed
Tuesday, December 6, 2005
Verizon Communications Inc., the second-largest U.S. phone
company, said yesterday that it will phase out
defined-benefit pension plans for about 50,000 management
employees to save money.
New York-based Verizon, the dominant local phone company in
the Washington area, said it would take a $97 million
fourth-quarter pretax charge as a result but expected to
save about $3 billion over the next decade because of the
Verizon is the latest in a long line of U.S. companies that
have phased out defined-benefit plans, which can be
expensive to maintain but typically guarantee workers a set
monthly payment in their retirement based on length of
service and final years of salary. Many companies instead
make contributions to 401(k)-style savings plans, which have
no guaranteed payout amount; rather, the size of an
employee's retirement nest egg is based on the success of
the worker's investment decisions.
In addition to saving money, Verizon officials said they
were trying to harmonize benefits among employees, including
those at Verizon Wireless and at Ashburn-based MCI Inc.,
which the company is acquiring.
Neither MCI nor Verizon Wireless managers have
defined-benefit pension plans.
"This restructuring reflects the realities of our changing
world. Companies today, including many we compete with, are
not adopting defined benefit pension plans or subsidized
retiree medical benefits," Ivan G. Seidenberg, Verizon's
chairman and chief executive, said in a statement.
As described by Verizon officials, the roughly 50,000
Verizon management workers will be eligible to save money in
401(k) plans, with the company contributing dollar for
dollar for the first 6 percent of savings. Verizon, at its
discretion, may contribute a further 50 cents on the dollar
for the first 6 percent depending on company performance.
That would mean workers could get up to a 9 percent match on
MCI managers, who now get a dollar-for-dollar match on
employee contributions up to 5 percent of annual pay, would
be raised to the new Verizon standard. Verizon Wireless
workers, who now get a dollar-for-dollar match on their
first 6 percent of contributions and a further 3 percent
depending on company performance, would see no change to
Verizon's planned changes have no effect on current
retirees, who will continue to receive their pension
benefits, or on unionized employees, whose pension benefits
are defined by their contracts.
Under Verizon's plan, announced in a statement late
yesterday, managers affected by the changes will retain the
pension benefits they have already earned, as required by
They will also get an extra 18 months of credit toward their
pension and retiree medical benefits. That means that in
the calculation of such benefits, Verizon employees will get
credit for 18 months of work that they have not actually
performed for the company.
This could prompt some older employees to decide to take
early retirement, which they may do if they have worked at
least 15 years and if their years of service and age add up
After June 30, 2006, Verizon said, its affected managers
will stop earning pension benefits, shifting instead to the
401(k) plan, and they will not receive any additional credit
toward the company's subsidy of retiree medical benefits.
Employees who do not have 15 years of service, including the
extra 18 months, will not receive any company subsidy for
retiree medical benefits. They remain eligible to buy such
coverage if they pay the full premium themselves.
Verizon will benefit by eliminating some of the uncertainty
associated with defined-benefit pension plans. Under
federal rules, companies can be required to make
contributions to their pension plans if their liabilities
increase or asset values fall, making their costs
Once the merger with MCI goes through, which is expected by
early next year, Verizon will have about 240,000 employees.
Of those, about 135,000 will be management employees and
about 105,000 will be unionized workers.
Over the past 20 years, thousands of U.S. companies have
shed their defined-benefit pension plans to cut costs.
As of last year, there were 29,600 single-employer
defined-benefit plans, down from 112,000 in 1985. However,
last year there were 34 million participants -- meaning
active workers and retirees -- in such plans, up 26 percent
The increase in the number of participants reflects the fact
that many of the pension plans eliminated were run by
relatively small companies.
Staff writer Albert B.
Crenshaw contributed to this report.