BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe

Fidelity to revamp retiree programs, terminate DB plan

Fidelity to revamp retiree programs, terminate DB plan

BOSTON—Mutual fund giant Fidelity Investments is overhauling its retiree savings program, setting up new retiree health care accounts to fill a gap in its benefit plans, while beefing up its 401(k) plan and terminating its defined benefit pension plan.

Boston-based Fidelity is setting up health reimbursement arrangements under which Fidelity will provide employees with a $3,000 annual credit. Employees can draw upon the accounts after turning age 55 to pay for retiree health care expenses, such as insurance premiums, on a tax-free basis. Employees will vest in the credits after 10 years of service.

A Fidelity spokeswoman said the company began to consider adding a retiree health care benefits program after employee surveys found that more than 70% of employees said they didn't know how they would pay for retiree health care expenses.

Retiree health care expenses are a "looming challenge" for employees and "we are restructuring our plans to meet that need," the spokeswoman said.

Benefit experts say the retiree HRA approach being taken by Fidelity is an appealing middle ground for employers, avoiding the extremes of providing no coverage or providing a traditional plan, whose future costs are difficult to measure and ultimately may be unaffordable.

"It is applying a defined contribution approach to retiree medical benefits. It is a way of controlling your costs and knowing what to expect in terms of expense," said Nancy Gerrie, a partner with McDermott, Will & Emery L.L.P. in Chicago.

Aside from adding a retiree HRA benefit, Fidelity is improving its 401(k) plan match, with the company matching 100% of employees' deferrals, up to 7% of pay. Fidelity now fully matches deferrals up to the first 5% of pay.

Fidelity also is terminating, effective June 1, its defined benefit plan, which has more than 32,000 participants. Participants will have a choice of taking their accrued benefits as an annuity or taking the accrued benefit as a lump sum, and, if they so choose, and transfer the benefit to their profit-sharing plan.

Unlike many other companies that are phasing out or terminating their defined benefit plans, the Fidelity plan is not the cornerstone of its retirement savings program. The biggest component is its profit-sharing plan, to which Fidelity in recent years has contributed an amount equal to 10% of employees' salaries annually, the spokeswoman said.