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DETROIT—Crain Communications Inc., the parent company of Business Insurance, is freezing its defined benefit pension plan, completing a process that began in 2004.
Effective Jan. 1, 2012, benefit accruals will stop for the plan's 226 active participants. Instead, participants will begin earning benefits through a defined contribution plan that Crain started in 2004. Crain's contributions to that plan, which are in addition to an existing profit-sharing plan that is offered to all U.S. employees, will be based on employees' length of service.
Employees with fewer than six years of service will receive an annual contribution of 2% of pay, those with six to 10 years of service will receive a contribution of 4% of pay, and those with more than 10 years of service will receive 6%. The company last week also said that its previous contribution of 8% of pay for employees with more than 15 of service would be eliminated, effective Jan. 1, 2012
Detroit-based Crain set up the defined contribution plan in 2004 to cover U.S. employees hired since Jan. 1, 2004. When the Service Reward Plan was announced, current employees were given a one-time choice to enroll in the new plan or remain in the company's traditional final-average-pay plan.
Low interest rates force move
Company officials attribute the decision to freeze the defined benefit plan, which as of Jan. 1 was 67.5% funded, to low interest rates, which boosts the value of plan liabilities and requires increased contributions.
“The recent reductions in interest rates, and the announced policy of the Fed to keep interest rates as low as possible for the next few years, forces private pension funds to expect increasingly higher pension liabilities—and funding requirements,” William Morrow, Detroit-based Crain executive vp, said in an email.
“These higher funding requirements are coming at a time when companies still have not fully recovered from the strains of the recession,” he said.
In freezing its defined benefit plan, Crain, which as of Sept. 30 had 810 full-time U.S. employees and 850 worldwide, joins a long line of employers—including Aon Corp., IBM Corp., NCR Corp. and Sears Roebuck & Co.—that have done the same in recent years.
In fact, consultant Towers Watson & Co. last year found that 35.5% of Fortune 1000 companies with defined benefit plans had frozen at least one of those plans, up from just 7.1% in 2004.