NEW YORK -- Will CBS fumble in a game plan that links 401(k) contributions to the financial performance of the broadcasting group?
Some union employees question the network's decision, claiming the new $4 billion contract with the National Football League could hurt earnings and reduce contributions to the $850 million plan.
Despite claims by union representatives that CBS Inc. might have softened its approach toward implementing the change, a network spokesman said the CBS board of directors last week announced its 1998 matching contribution under the new formula, which is based on 1997 performance.
The spokesman said CBS will go ahead with the change and has no plans to modify it.
He added the network would continue to discuss the issue with the union.
"We are moving ahead with plans to change the 401(k) from a guaranteed-fixed match to a performance-based match," said the spokesman.
In its Feb. 4 announcement of fourth-quarter earnings, CBS also announced its contribution level for the coming year. If CBS had met its "financial and strategic goals," the match would have been 60 cents per dollar on the first 5% of employee contributions. Because CBS fell somewhat short of its financial targets for 1997, the spokesman said the match would drop to 50 cents per dollar on the first 5% of contributions. The formula could go as high as a 100% match if CBS exceeds its financial objectives.
"This has nothing to do with the union, this change applies to all CBS employees," said the CBS spokesman.
Besides thinking the eight-year NFL contract might drain corporate profits and cut 401(k) contributions, the American Federation of Television and Radio Artists, representing many CBS workers, questioned whether CBS had the right to make changes without negotiating with the union.
AFTRA last year had threatened a lawsuit, claiming CBS could not unilaterally modify the plan design and funding formula.
AFTRA and CBS spokesmen said the issue would be the topic of discussions in coming months.
"We have been advised the CBS board of directors has authorized the company to continue an uninterrupted 401(k) employer match through 1998 based on the company's 1997 performance," said an AFTRA spokesman. "Details are being worked out, and AFTRA plans more meetings with CBS to work on the details and on other open health and pension issues."
The CBS spokesman said the change in matching from a fixed amount to a variable performance based method "is a major cultural blow" to employees. He said union workers were "worried that performance-based contributions may be an excuse to contribute nothing. We hope everyone is reassured that is not the case by the match we announced this week."
But the CBS announcement, some said, might not be coincidental with CBS' $4 billion payout to resume televising NFL games after a four-year hiatus. The contract could put a severe strain on future earnings, one of the principal measures of performance-based contribution formulas.
"It gives them leeway to not make matching contributions if the company hits the skids," said one consultant. "But I would assume that CBS wouldn't have proposed doing this if it didn't have some legal opportunity to do so."
Industry specialists and consultants who work with union and Taft-Hartley plans said most plan design changes involving union employees would require union approval. They cautioned, however, that they are unfamiliar with the particulars of the CBS plan.
"It looks like the union is saying that the change in contributions was not bargained in good faith by the company," said one consultant. "Normally, this would be fully negotiated."
Consultants say the use of performance-based matching contributions to 401(k) plans is increasing. The move is part of a trend toward tying benefits, and not just compensation, to economic performance.
According to a Hewitt Associates survey released last month, while 67% of 401(k) plan sponsors offer a fixed match on employee contributions, matches based on company performance more than tripled since 1995.
Performance-based matches increased to 14% in 1997 from only 4% in 1995, the survey showed.
Most firms with performance-based contributions base the match on net profits before taxes (30%). Another 19% base the match on profitability; 11% base the match on earnings per share.
"More and more companies are looking at all their compensation and benefits and getting away from the old-fashioned guarantee and tying some forms of compensation to performance targets. Then it becomes a question of how to implement that," said Alan Steinberg, consultant at Hewitt Associates, Lincolnshire, Ill.
"A lot of 401(k) plans will have a basic match, or no match, and if it hits its performance target goals, participants will get a certain base amount; if it exceeds its performance goals, participants will get that amount plus."
Companies such as Owens-Corning Fiberglas Corp., Toledo, Ohio, and Warner-Lambert Co., Morris Plains, N.J., have long made 401(k) contributions based on financial performance.
Steve Dover, director of benefits at Warner-Lambert, said performance based funding has been "working well" since 1992.
"We have a base matching level if the company meets its earnings-per-share growth and three levels of incremental increases," if the company exceeds its earnings-per-share growth, he said.
Mr. Dover said the richest level of funding could result in a 100% match on the first 6% of salary deferrals.
"The fundamental philosophy is we want people to know that if you work hard and the company is successful, there is something in it for you," he said.