DuPont Changes Retirement Options

DuPont last week announced a money-saving change to its U.S. employee retirement options. Under the new plan, the company will change its defined-benefits pension plan, which is funded by the company, and upgrade its employee savings plan to a savings-and-investment retirement plan, or a 401(k). The move will add $0.03 per share in 2007 and $0.05 per share thereafter.

As the new savings plan is phased in, the company's defined-benefits pension program will continue for current employees, but after 2007, DuPont's contribution will be lowered by one-third of its current level.

The new savings plan, which will take effect in January 2008, will include 100% employee participation with a company contribution of 3% of each employee's pay into the worker's account. In addition, employees who add their own contributions to the plan will receive a 100% company match on the first 6% of their savings.

The new savings plan will begin on Jan. 1, 2007, for new employees, who will not participate in the defined-benefits pension plan.

Mike Johnston, practice leader in human resources consulting firm Hewitt Associates' retirement practice, says there are three interconnected reasons why companies are getting out of defined pensions. First is competitiveness. "In a world of global workforces," he says, "American companies spend more on retirement than companies in other parts of the world do."

Second, he says, government regulation "in the past few years has made defined pension plans riskier to operate." New pension rules recently signed into law mean that contributions to defined-benefits plans are going to respond much more quickly to any kind of underlying volatility. And if assets go down, employers are going to have to put in more money, and it's going to hit them sooner than under the old law.

And finally, Johnston thinks most new employees have no idea what a defined-benefits plan means. "From the standpoint of attracting new employees, 401(k) plans have been much sexier," he says.