NCR's move "is part of a continuation of a trend," said Don Bartolai, principal of Mellon Human Resources & Investment Solutions, Chicago. "As more people do it (close defined benefit plans), it becomes more acceptable and more companies will feel comfortable doing it," he added.
An informal review by Mercer Human Resource Consulting, Washington, of 51 current retirement plan design projects among its clients found the two most prevalent reasons employers are considering a move to a defined contribution plan from a defined benefit one are to shift more investment risk to employees and to control long-term plan costs.
In some of these projects, according to Mercer, employers are moving all or some current employees from the defined benefit plan to the defined contribution plan, whereas in other projects only new entrants will be participating in the defined contribution plan only.
NCR's pension expense in the first quarter of 2004 was $32 million, and the company contributed $105 million into the plan in 2003. By closing the defined benefit plan to new employees, the company expects to almost eliminateits U.S. pension expense by 2007, according to NCR's filing.
"The company doesn't expect a meaningful reduction in its 2004 pension expense.
For future years, the company has modeled its pension expense expectations using the assumptions it applied in 2004, including discount rates and expected investment returns on plan assets," according to the filing.
Using those assumptions, NCR said it will not be required to make cash contributions to its U.S. pension plans prior to 2007.
NCR said in the filing that while the change to its U.S. pension plan is significant, using current assumptions, the company's international pension plans are likely to comprise about 40% of the company's total pension expense in 2004, and increase in future years.