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PHILADELPHIA and TROY, Mich.Two large employers, Lincoln Financial Group and ArvinMeritor Inc., last week said they will freeze their defined benefit pension plans and enhance their 401(k) plans.
Effective Jan. 1, 2008, employees of Philadelphia-based Lincoln Financial no longer will accrue benefits in the pension plan. The life insurer will improve its 401(k) plan in two ways: by providing an automatic contribution equal to 4% of employee pay, and by matching 100% of employees' salary deferrals up to the first 6% of pay. Currently, Lincoln matches 50% of deferrals on the first 6% of pay.
Philadelphia-based Lincoln Financial, which last year reported net income of about $1.32 billion on revenues of just over $9 billion, said the retirement plan changes were driven by the "changing dynamic of the retirement landscape, and the greater need by today's employees for flexibility and portability of their retirement assets."
The pension plan freeze at ArvinMeritor, a Troy, Mich.-based automotive components manufacturer, will affect about 3,800 salaried and other nonunion employees and will occur in two stages. The first stage of the freeze will begin Jan. 1, 2008, but will exclude older employees with at least 10 years of service, who will continue to accrue benefits under the pension plan.
But after June 30, 2011, those older employees--workers of at least age 50 with 10 years of service and employees with at least 20 years of service as of Dec. 31, 2007--will cease accruing benefits under the plan.
While phasing out the defined benefit plan, ArvinMeritor, which last year reported a net loss of $175 million on sales of about $9.2 billion, is sweetening its 401(k) plan. The company will make an automatic contribution that increases with age. The contribution will be equal to 2% of pay for employees younger than age 30, with the contribution gradually increasing with employee age until topping off at 4% for employees age 60 and older.
Those contributions will come on top of ArvinMeritor's 401(k) plan matching contributions. Currently, the company matches 100% of employees' salary deferrals, up to the first 3% of pay, and matches 50% of deferrals on the next 3% of pay.
The changes will enable the company to offer a retirement savings program that will meet employee needs while allowing the company to better manage ongoing funding requirements, a spokeswoman said.