Chrysler plans to freeze pensions for 8,000 salaried employees at the end of the year, the automaker announced Friday, joining a growing group of companies seeking to limit the amount of money they have to set aside now for future retirees.
The move means that salaried workers in the company’s pension plan, which pays retirees a fixed benefit for life, will stop accruing new benefits at the end of 2013. They remain entitled to the pension benefits they have earned so far, but instead of adding to the guaranteed payments they will receive at retirement, the workers will be offered 401(k) accounts, which shift the risk of saving for retirement from employers to employees.
Chrysler's decision comes after a similar one by General Motors, which last year froze pensions for 26,000 salaried workers in the United States, moving them to 401(k) plans.
Chrysler's move does not affect retirees or 27,000 hourly workers in the United States, whose retirement benefits are negotiated in contracts with the United Auto Workers union. Chrysler had already stopped offering traditional pensions to new salaried employees, who instead were offered 401(k)s, although salaried workers already with the company were allowed to remain in the pension plan.
“Nearly ten years ago, to help mitigate unpredictable financial costs and consistent with industry trends, Chrysler closed the pension plans to new participants,” Nancy Rae, Chrysler’s senior vice president for human resources, said in a statement. She added: “We recognize the importance employees place on retirement benefits. As we move forward, Chrysler Group will provide comprehensive tools and resources to help employees make decisions about their retirement readiness.”
The number of employers offering pensions that pay retirees a fixed benefit for life has been in steady decline for decades. The Pension Benefit Guaranty Corp., the federal agency that insures private-sector pension plans, reports that the number of plans it insures for individual employers plummeted from 112,208 in 1985 to 25,600 in 2011.
Many private employers stopped offering traditional pensions and switched to 401(k)-type accounts in large part because government rules aimed at ensuring the financial viability of the traditional plans made it more expensive for employers to provide them.
The financial risk posed by pension plans only increased when a long run of stock market gains ended in 2000, giving way to more volatile returns. Now, meager interest rates are squeezing pension plans because the way accounting rules work, lower rates mean companies have to set aside more money to pay for future liabilities.
Rae said Chrsyler's move to freeze its pension plan for salaried workers was done “in order to comply with IRS regulations” and was “consistent with industry trends.”