STAMFORD, Conn. — Verizon Communications Inc.'s announcement that it will freeze its $39 billion cash balance plan for management employees is being called the latest nail in the coffin for defined benefit plans.
"Another one bites the dust. They're the latest company to decide that a pension plan is too darn expensive to maintain," said Rick Meigs, founder of 401khelpcenter.com, Portland, Ore., a website dedicated to 401(k) plan information.
Verizon's announcement last week that it will freeze the plan on June 30 will affect 50,000 management employees, about 25% of the work forces.
In an e-mail to employees announcing that the cash balance and subsidized retiree medical plans would be frozen, Ivan Seidenberg, chairman and chief executive officer of Verizon, said: "These changes will provide us with a more affordable benefit cost structure…. This restructuring reflects the realities of our changing world. Companies today, including many we compete with, are not adopting defined benefit plans or subsidized retiree medical benefits. We must ensure that we remain competitive."
Company officials tried to lessen the blow by also announcing they are boosting the company match in Verizon's $15.7 billion 401(k) plan.
Effective July 1, Verizon will raise its company match to $1 for every dollar employees contribute up to 6%, said spokesman Bob Varettoni. In addition, Verizon will raise its match to $1.50 if the company reaches certain financial targets, said Mr. Varettoni. The current match is $1 for every dollar up to 5%.
Mr. Varettoni said the restructuring will save Verizon $3 billion over the next decade.