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PLAN DOESN'T VALUE LONG-TERM EMPLOYEES

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To the editor: I read with interest the March 24 article "Engine Maker Switches Gears" regarding Cummins Engine's pension plan changes.

I couldn't help but wonder if the message Cummins is communicating to its employees is genuine or just a smokescreen.

Cummins wanted a pension plan that would better meet the needs of its employees, meaning a plan that would better meet employees' needs throughout their careers, and a plan that would be easier to understand.

Consequently, Cummins replaced its traditional final average pay defined benefit plan with a cash balance plan. The final average pay plan was skewed in favor of long-service employees and Cummins wanted to say to its employees that we value your service throughout your employment at the company.

Employees leaving after a few years of service receive significantly higher benefits under a cash balance plan than they would have in the final average pay plan. So far so good!

However, the article on Cummins later states that the new cash balance plan costs somewhat less than the previous plan.

Well, if the short-service employees are getting more under the new plan, the long-service employees must be getting less.

But not to worry-Cummins enriched its 401(k) plan so that its overall retirement benefit plan costs remained about the same.

But an enriched 401(k) plan also disproportionately favors young, short-service employees since the older, long-service employees have less time to earn meaningful benefits from their additional 401(k) contributions.

All this leads one to wonder if Cummins Engine's objective is to reward short-service employment or to encourage short-service employment. There's a big difference.

Michael Pikelny

Hartmarx Corp.

Benefits Consultant

Chicago