E.I. du Pont de Nemours & Co., Wilmington, Del., is freezing its U.S. defined benefit plan in late 2018, the company said in an 8-K filing Thursday.
As of Nov. 30, 2018, active employees will no longer accrue additional benefits. Employees under age 50 also will no longer receive post-employment medical and life insurance benefits. The changes will reduce DuPont’s benefit obligation by an estimated $550 million and result in a fourth-quarter 2016 pre-tax gain of approximately $380 million, the filing said.
As of Dec. 31, 2015, the plan had market value assets of $14 billion and liabilities of $19 billion. Of the 133,000 plan participants, 13,000 are active employees who will be impacted by the change.
DuPont closed its U.S. defined benefit plan to new employees in January 2007, and enriched its 401(k) plan to offer “more modern, portable benefits,” said a recent letter to employees from Benito Cachinero-Sanchez, senior vice president of human resources, adding that the changes “bring us closer to the practices of our global peer set.” They will also enable the company to better manage retirement plan cost volatility and unpredictability, he said.
The effective date of the pension freeze could change once the proposed merger with Dow Chemical Co., Midland, Mich., is finalized and a new company is formed. In September, DuPont Chairman and CEO Ed Breen said that the merger is expected to close in the first quarter of 2017, creating a new $130 billion company, DowDuPont.
Companies must allow a minimum of 45 days notice before freezing defined benefit plans. While DuPont’s two-year notice is not common, “it is best practice,” said Ari Jacobs, Aon Hewitt senior partner and global retirement solutions leader, in an interview.
DuPont’s enhanced defined contribution plan, which includes a company match of up to 6% of pay plus another 3% company contribution, “is typical when a company is transitioning and using the DC plan as a vehicle to replace the DB plan,” said Mr. Jacobs.
In September, DuPont began offering lump-sum payments to roughly 18,000 former employees participating in the defined benefit plan who have yet to retire.