Center for Retirement Research paper:

Click here to read "Why Are Healthy Employers Freezing Their Pensions?"

U.S. EMPLOYEES: 71,000

TYPE OF PLANS: Traditional Defined Benefit — 26,100 participants affected; Cash Balance — 6,100 participants affected

DATE ANNOUNCED: July 19, 2005

DATE EFFECTIVE: Jan. 1, 2006

DESCRIPTION OF FREEZE: Partial Freeze and Freeze for New Employees. U.S. employees whose combined age and tenure did not equal a minimum of 62, as of Dec. 31, stopped accruing defined benefit pension benefits. Also, new hires are not eligible to participate in the defined benefit pension plan.

PLAN SOLVENCY: The U.S. plan assets, at year-end 2005, were $4.8 billion. Obligations of these plans were $5.3 billion.

REPORTED FINANCIAL IMPLICATION: Due to the freeze, defined benefit pension obligations were expected to decline by $526 million. As a result of this reduction, Hewlett-Packard recognized a gain of $199 million in the fourth quarter of fiscal 2005. In 2006, the company will save an estimated $154 million on account of the freeze. The company expects annual savings of $300 million starting in 2007 solely as a result of the pension freeze.

NEW ARRANGEMENTS FOR EMPLOYEES: Hewlett-Packard increased the total 401(k) contribution match to 6% from 4% of pay.

BACKGROUND: Hewlett-Packard is among the world’s largest information technology companies. The announcement was made just weeks after IBM made a similar change. Many saw Hewlett-Packard's actions as a direct effort to match IBM and remain competitive. The announcement was also made in tandem with large cuts in Hewlett-Packard's workforce and significant restructuring.

Center for Retirement Research paper:

Click here to read "Why Are Healthy Employers Freezing Their Pensions?"