International Business Machines Corp.'s quest to cut pension costs worldwide has hit a stumbling block.
Talks aimed at moving 11,000 employees of IBM's German operations to a defined contribution plan from a defined benefit program broke down, according to sources close to the negotiations, marking what could be a significant setback in its efforts to overhaul pension plans around the world.
German rules require rigorous evidence to prove that keeping the existing plan will cause dire economic consequences, said Rolf Schmidt, an officer of the United Services Industries Union, Berlin, which represents some of the IBM workers. "There's no bad situation in the economy or the company, so there's no way of changing the rules of the pension system."
"The IBM management (team) is further working on finding a sound solution for all participants. … IBM does not comment on status of internal discussions and negotiations," Ursula Diel, IBM's spokeswoman in Stuttgart, said in a statement.
Overall, IBM has about 22,000 employees in Germany, about half of whom participate in a DC plan introduced in July 2000. In January 2006, IBM officials announced they would negotiate with the remainder of the employees to freeze the IBM Deutschland Pensionskasse to future accruals, which would be switched over to a DC plan. The pension plan has about €6 billion ($7.64 billion) in assets, according to International Pension Funds and their Advisers.
"Management is thinking about what to do next," Mr. Schmidt said. "There is no easy answer, but we must work together to find a way to resolve this problem" of rising pension costs on the balance sheet.