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DuPont to end pension contribution for active employees

DuPont will no longer contribute to active employees' pension plans, a move that will affect the retirement of 13,000 workers, including 2,800 in Delaware.

The Wilmington-area company announced Thursday that workers will stop accruing benefits sometime in November 2018 or the creation date of the first independent company spawned through the proposed $130 billion merger with Dow. Only employees in the United States and Puerto Rico will be affected by this move.

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The company also eliminated retirement health benefits, including dental and life insurance for all employees under the age of 50 when the pension contribution ends in about two years.

DuPont estimates the changes will reduce its long-term employee benefits obligation by about $550 million, creating a fourth-quarter pre-tax gain of $380 million. Once DuPont stops adding to active employees' pensions, it will eliminate the $50 million it pays annually to maintain the plan.

Cost reductions associated with the phaseout of employee contributions to the pension plan are considered new cuts. They are not part of the $700 million DuPont is seeking to eliminate from its budget by the end of this year.

All benefits earned by employees through the termination of new contributions in 2018 will remain. Under federal law, those benefits cannot be touched. Current retirees' pensions will not be impacted.

In 2007, DuPont closed the pension plan to new employees. At that time, the company reduced its contribution to the employee plan by two-thirds, but the company also put all of its workers in an enhanced 401(k) benefit. DuPont provides a 9% company contribution to 401(k).

The company said 401(k) plans and health savings accounts will not be affected by Thursday's actions.

Workers at DuPont's Chestnut Run Headquarters said they were still digesting the news Wednesday afternoon. A 35-year DuPont veteran said the decision won't affect her because she still as a 401(k) and her pension has built up over time.

"My plan was to live on the pension, and I could certainly do that," she said. "I'm only going to lose a small portion of what I was expecting."

Another DuPonter said employees were preparing for something like this given the company's efforts to reduce costs and the fact that the pension contribution for active employees was cut by roughly 75% nearly a decade ago.

"I think everyone was expecting this," he said. "They have eliminated the final one-third."

Norman Stein, a professor of pension and employee benefits law at Drexel University in Philadelphia, said the move hurts older, longtime employees. Typically, most pension plans' retirement payouts are based on a workers' final salary before they leave the company.

"Most defined benefit plans reward longevity and loyalty because the most valuable benefits are the ones you accrue toward the the end of your career," he said. "The implied nature of the pension promise is that if an employee gives a company their career, they are going to get a good retirement."

DuPont announced the changes in a letter to employees from Benito Cachinero-Sanchez, senior vice president of human resources.

"The DuPont board and our senior management team recently completed an extensive and thoughtful evaluation of our retirement benefits, and determined that additional changes need to be implemented beginning in 2018," Cachinero-Sanchez wrote. "The changes will reflect another step in our multi-year analysis and bring us closer to the practices of our global peer set."

DuPont emphasized the changes are not a result of the Dow merger, but rather an attempt to align with industry trends and practices. Since 1998, 23% of Fortune 500 employees have stopped contributing to their primary pension plan, and 15% closed it to new hires. During that same period, 40% of Fortune 500 companies have offered only some type of 401(k).

Stein said many companies are following DuPont's path of closing the plan to new employees before ending contributions for active workers.

"It's often part of a multi-step process," he said.

Retirees and active employees have expressed concern over the security of DuPont's pension obligation. The company's obligation totals $26.1 billion, but the fund only has $17.5 billion of assets. This year was the first time DuPont had contributed to the plan since 2012. A group of DuPont pensioners launched a Facebook page that now has more than 5,000 members.

Craig Skaggs, a second-generation DuPont worker and former lobbyist for the company, created the site for retirees to exchange pension information. The Facebook page has spawned a 300-member sister site for active employees. Skaggs said eliminating contributions for active employees has sparked concerns among some retirees.

"It has been a drip, drip, drip of destruction," Skaggs said. "People are saying pulling our medical benefits is the next obvious move. We worry more about losing our health benefits than losing our pensions completely."

Earlier this year, DuPont sought to reduce its pension obligation by offering a buyout to 18,000 retirees. The retirees traded their future pensions for lump-sum payments or an earlier, but smaller monthly annuity instead of waiting until they reach 62 to collect the traditional pension. The buyout will be paid out through the end of this year.

Retirees have claimed DuPont's pension is only 67% funded. Under Pension Benefit Guarantee Corp., a government agency that provides a safety net for retirees, a plan is considered healthy only if it is greater than 80% funded. If a plan falls below the 80% threshold, PBGC launches an investigation.

In September, DuPont spokesman Dan Turner had confirmed that DuPont has never been under a PBGC investigation, but the agency has requested additional corporate financial and pension plan information. The additional information was used for oversight, monitoring and other purposes.

DuPont contends the plan is actually 93% funded. The difference is a 2010 federal law that offers companies a new way to measure pension funding levels. Under the law, known as Moving Ahead for Progress in the 21st Century, or MAP-21, companies can calculate their funding level using a 25-year average of interest rates instead of the two-year average businesses traditionally used.