Verizon Unveils Major Changes to Retirement Benefits
ROBERT SIEGEL, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
Telecom giant Verizon announced today that it will freeze its current pension plan for 50,000 white-collar workers. The company says it will also cut back on retiree health-care benefits in an effort to save around $3 billion over the next decade. Verizon isn't losing money; in fact, it's highly profitable. But the company says it needs to overhaul its pension and health-care plans if it's going to remain competitive in the future. NPR's Jack Speer reports.
JACK SPEER reporting:
Verizon plans to stop making contributions to its existing pension plan in June of next year. The plan won't disappear; it will still be used to pay out retirement benefits. But with no more money going in, the plan is essentially frozen in place and won't grow to provide the full benefits those 50,000 managers were expecting. Instead, Verizon managers will have the option of participating in a 401(k)-type retirement plan. Verizon spokesman Peter Thonis says the company's up against a host of new competitors, many of whom don't offer traditional pension plans.
Mr. PETER THONIS (Spokesman, Verizon): It's important to align our benefits and our cost structure with what is becoming our industry. Our industry has changed dramatically in the last couple of years, so our competitors include cable companies, includes new entrants into the business, like Vonage and Google, etc. And these companies, in most cases, do not have defined benefit plans.
SPEER: Verizon also plans to reduce retiree health-care benefits for those who have less than 15 years of service. The announcement comes as the company is busy trying to complete its acquisition of MCI. MCI managers didn't have a traditional pension plan. Thonis says this will coordinate the respective companies' plans.
Mr. THONIS: Generally, what we're really doing is moving and aligning our organizations so that the wireless business, the MCI business, as it comes into Verizon, and the domestic telecom business all have the same benefits and that they are really focused on 401(k)s.
SPEER: But pension rights advocates argue that companies that curtail or eliminate pension plans are failing to live up to promises made to employees. Karen Friedman is policy director at the Pension Rights Center.
Mr. KAREN FRIEDMAN (Policy Director, Pension Rights Center): From an employee's point of view, I think this is going to have a dramatic impact, I think that employees at Verizon, especially older employees, are going to potentially have significant benefit cuts and I think that a lot of employees are going to protest this.
SPEER: And Verizon's announcement is playing to mixed reviews among Verizon managers. In New York today, Amy Segal and Joe Collins had very different assessments.
Ms. AMY SEGAL (Verizon): I think it's great for the business. I think it positions us to be more competitive. I think it's more than made up in what they're offering in terms of the new 401(k) provisions. And it drives performance, which is exactly what we want to do at the company.
Mr. JOE COLLINS (Verizon): Oh, it's outrageous that they, you know, change the rules in the middle of the game, you know, but it's just part and parcel of the arrogance of the management. $225 a month--I don't see how that's going to get me anywhere.
SPEER: But experts say the move away from traditional pensions that began back in the 1980s has only accelerated. Sears, FleetBoston and a host of other companies have all recently decided to stop expanding their traditional pensions. Dallas Salisbury is with the Employee Benefit Research Institute.
Mr. DALLAS SALISBURY (Employee Benefit Research Institute): I think the clearest message of it for individuals is that we are at only 17 to 18 percent of the working population in the private sector in defined benefit plans. This says that you do need to save for your future; you need to save for yourself. And if you don't do that, then you may get the honor to work forever.
SPEER: Verizon, which hopes to complete its merger with MCI by early next year, says it will match employee 401(k) contributions up to 6 percent of managers' salaries, with a possibility that match may go higher if the merged company does well. At least for now the company's 105,000 hourly workers are still covered by a traditional pension. Jack Speer, NPR News, Washington.