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AKRON, Ohio--Continuing its drive to reduce its retiree benefit costs and obligations, Goodyear Tire & Rubber Co. is phasing out its defined benefit pension plan, as well as boosting retiree health care premiums and is no longer paying premiums for a retiree life insurance plan.
The changes, which only affect salaried employees and retirees, are expected to generate roughly $260 million to $300 million in aftertax savings from 2007 through 2009, with $80 million to $90 million in annual savings after that.
Like many other major corporations, Goodyear is winding down its defined benefit plan, which it will freeze on Dec. 31, 2008.Starting on Jan. 1, 2009, Goodyear will make automatic contributions to a 401(k) plan, with its contributions based on employees' age and service. It also will match 50% of employees' salary deferrals, up to the first 4% of pay. Currently, Goodyear offers a 401(k) plan to salaried employees, but does not match their contributions.
On the health care side, Goodyear, effective Jan. 1, 2008, will increase premiums that current and future retirees pay for coverage. At the same time, it also will discontinue paying premiums for a retiree life insurance plan.
The changes, said Goodyear executives, are intended to increase its competitiveness while reducing its cost structure.
"These changes allow us to continue to provide the kind of compensation packages that are competitive and will attract and retain talented associates," said Kathleen Geier, Goodyear's senior vp of human resources. "They are also consistent with our goal of reducing costs in excess of $1 billion by 2008."
Earlier, Akron, Ohio-based Goodyear took the first step to reduce benefit obligations through an arrangement--agreed to by the United Steelworkers union--in which Goodyear will contribute $1 billion to a special tax-exempt health care trust that will provide benefits to USW-represented retirees.
In turn, Goodyear will have no future obligation to provide retiree health care benefits, removing a $1.3 billion projected obligation from its balance sheet and improving annual cash flow by $145 million a year (BI, Jan. 15).