NCR to shut down $2.5 billion DB plan

DAYTON, Ohio — NCR Corp. will close its $2.5 billion defined benefit plan to new employees and current employees under age 40 on Sept. 1, according to a filing with the Securities and Exchange Commission.

In turn, the company will increase the match in its $1.5 billion 401(k) plan, to 5% from 3.5%.

"This initiative is one of many components to realign our cost structure and make us more competitive," said John Hourigan, a company spokesman. "We want to provide good benefits while containing and managing costs," he added.

The changes are part of the company's plan to cut annual costs by at least $250 million by the end of 2005.

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.

The company also said it is examining its international pension plans and expects to make changes in these plans during the next several quarters using the same criteria that it used when it made the decision on its U.S. defined benefit plan.

"We are currently reviewing the international pension plans and we expect to make changes to those plans as well in coming years, in keeping with local laws," said Mr. Hourigan.

Employees older than 40 and hired before Sept. 1 will have a choice of continuing to accrue benefits under the existing U.S. defined benefit plan and retaining the current 401(k) match, or discontinuing further accruals under the defined benefit plan in favor of the enhanced 401(k) match.