INDUSTRY ISSUESAuto Workers Take It On The Chin CHICAGO (Feb. 3, 2006) - "I'd gladly pay you Tuesday for a hamburger today." With the same logic as Wimpy used on Popeye, the future value that employees reap for their years of labor, may be worth much less when the debt comes due.
Until recently, it was only companies in bankruptcy protection or worse that walked away for pension and benefits agreements negotiated between management and employees. But in recent times, healthy and profitable firms have begun to abandon previous pension promises, moving to reduce compensation for retired workers. According to PlanSponsor and the Tennessean newspaper, Nissan North America is one of the latest companies to embrace this trend.
It's all about financial risk The rationale is simple. Essentially, companies are freezing their existing retirement plans that promised a specific monthly benefit for existing employees, and switching to less expensive plans that are based on an employee's contributions up to retirement. By freezing more expensive schemes - known as defined "benefit" plans - in favor of less expensive defined "contribution" plans, companies are limiting their retirement risk years later.
General Motors (GM) and Ford are clearly mired in dealing with the consequences of benefit pension and healthcare plans for employees. Their heavy legacy cost issues where a growing, large number of retired and near-retirement employees are supported by the company and its thinned workforces is one of the drivers for corporate change elsewhere. Yet, the renegotiated agreements between the two automakers and the UAW are being disputed by the automakers' retired workers. The convulsions at GM and Ford, both internally and with guarantees made to spun-off suppliers such as Delphi, are enough to make others companies shudder and look for something safer. As consumers aren't predisposed to paying more for vehicles, who's left? Employees.
Avoiding the plight faced by GM and Ford is clearly in the interests of other companies, especially those with younger-aged employees. According to the Tennessean, Nissan says the changes are part of an effort to keep its retirement plan viable and to remain competitive in the automotive industry. "While Nissan sales and profitability remain strong today, strong sales do not necessarily equal success tomorrow," the company said in an informational letter to retirees.
Paying the piper As of Jan. 1, 2006, new manufacturing workers hired at Nissan won't have the traditional pension that their predecessors had when they retired. Instead, Nissan has frozen its former plan for older employees and switched to a 401(k)-type defined contribution plan going forwards. In addition, effective Jan. 1, 2007, the company plans to pay retirees in its manufacturing division an annual stipend - based on their pay at retirement - to supplement Medicare coverage to people who were younger than 65 at the end of last year, rather than include them in the company-sponsored medical plan. The net result is a payout at retirement for all employees that will have less risk of being a financial anchor for the employer.
Nissan isn't alone in this. In recent years IBM, Hewlett-Packard, Alcoa and other companies have undertaken similar measures to limit future exposure. It's legal - so they can and do institute them. Yet the gains that the companies make will come at the expense to employees, without any compensation to them such as increased wages or other benefits in the here and now. Furthermore, in tougher economic times, the federal regulations applying to newly embraced defined contribution plans allow an employer to reduce its level of matching of employee contributions, when and how it sees fit.
Bottom line here? Less into the retirement pot while working means less out upon retirement, when needed.
In effect, companies that do this are retaining some of the future value of employees' contribution today. While employees may still have plans, the payback for the value of experienced skilled labor over years of service will be reflected in an eroded payout tomorrow.
Some call it a bait and switch of sorts - legal, disguised in rhetoric, and often marketed better to employees than the products manufactured are marketed to consumers. Changing to a defined contribution plan transfers financial risk to the employees - and moneywise, we aren't talking hamburgers here.
(Source: PlanSponsor,
Slate,
The
Tennesean) 
