3M to limit its pension benefits for new hires
By Dee DePass
Tuesday, April 1, 2008
3M Co. said Monday that it is altering retiree medical plans and
eliminating a defined-benefit pension plan for new hires, a
benefit once regarded as one of the most generous in the nation.
In lieu of 3M's traditional pension plan, new hires will receive
a new 401(k) savings plan, to which 3M will contribute 3 percent
of pay to retirement accounts and a dollar-for-dollar match on
employee contributions, up to 6 percent of pay.
The changes, which are similar to those taken by scores of other
corporations looking to reduce distant pension costs, will
generally go into effect next year. Spokeswoman Jackie
Berry said the new pension plan is designed to be portable, a
characteristic that is highly desired by workers.
Current employees and retirees will not see a change to their
existing pension plan or to the current 6 percent match to their
401(k) plans, Berry said. But 3M will end its
practice of quarterly and annual contributions to the 401(k)
plan, which had varied depending upon 3M's performance each
quarter, officials said. Instead, the company will
contribute a fixed amount.
Company officials would not say how much 3M expects to save in
2009 when pensions will no longer be offered to new hires.
3M had about 76,239 workers worldwide last year, including
16,200 in Minnesota. 3M's
annual report says consolidated pretax pension expense was $190
million in 2007, down from $347 million in 2006. Pension
expense could hit just $126 million in 2008. Benefit
experts speculated that the decrease could be due to the sale of
3M's pharmaceutical division and widespread job cuts over the
last two years.
Deloitte & Touche audit partner Wally Carson said "It's really
hard to figure out the savings because there are so many details
embedded in all that."
But savings is what it's all about. "With manufacturing
companies in particular, this [pension cutting] is a pretty
common trend because they are getting squeezed on their
profitability" with rising raw material costs, skyrocketing
energy expenses and the fight to keep labor costs down in order
to compete with India and China, Carson said.
"Pension costs are pretty expensive for them, just like medical
costs," he said. "So they are shifting more of those costs
down to the employees."
3M also is revising its retiree medical plan. Retirees not
yet eligible for Medicare will get a plan that offers "a new
cost-sharing approach to help pay medical premiums," officials
said. Retirees who leave before 2013 will have the choice
of either the current 3M medical plan or a new open-market,
"consumer-directed" plan that pays premiums with a
company-sponsored retiree medical savings account. After
2013, retires will only pay premiums with credits accumulated
through their retiree medical savings account.
Second change in a year
Monday's pension and medical changes mark 3M's second major
change to compensation and benefits. Last year, 3M began
significantly cutting stock-option plans for managers and ending
the quarterly profit-sharing checks it had disbursed since the
1950s. Despite complaints from managers who said they
relied on the quarterly income, profit sharing is now issued
just once a year. The number of lower-level managers
eligible for stock option plans also dropped significantly.
Jan Angell, 3M's compensation and benefits vice president, said
the changes announced Monday "will ensure value and sustain our
program that is consistently ranked among the best." Berry added that new workers and retirees are
most concerned with the portability of retirement funds and want
more choices in medical plans.
Fred Zimmerman, author and retired manufacturing professor at
the University of St. Thomas, said that 3M is joining the
likes of John Deere, General Electric and Winnebago in ending
traditional pension plans for new hires.
"The motivating factor behind many of these changes that
companies are doing has little to do with their regard for their
employees or their willingness to share the wealth with
employees. It has more to do with the unintended
consequences of increased [accounting] regulation," Zimmerman
While new accounting and Sarbanes Oxley rules helped make
corporations more transparent, they also require tens or
hundreds of millions of dollars in future pension liabilities to
be accounted now and "that bites into equity," he said.
In Winnebago's case, retaining pension plans as is would have
meant $135 million liability, "which is equal to roughly three
years worth of profit," said Zimmerman, who was a former board
By killing defined-benefit pension plans for future hires, 3M
and others get out from under "future liability," said Bob
Hartman, who heads Lindquist & Vennum's employee benefits
department. "With these kinds of plans, the onus is on the
company to fund it."
Dee DePass • 612-673-7725