Siemens Corp. swapped a future $5 billion pension liability for a $259 million one-time P&L impact when it froze its pension plan and offered employees increased company-matching contributions as well as a new service-based company contribution to the 401(k) plan — the combination of which equaled the company’s contribution under the pension plan.
It didn’t reduce the company’s current-day costs — in fact, it cost more money, said Steven Seltz, vice president of compensation and benefits for US/Americas for Siemens Corp. — but it did eliminate potential liability down the road.
And it was a long road to see the plan from conception to fruition — take two years to conceive and get approvals and another year to communicate and implement the change, Seltz said.
“There was no way we could overcommunicate” the changes, he said, noting that employees received at least six written brochures, notifications or requests for action during the transition. Siemens also offered in-person and web financial-planning seminars and offered financial counseling.
They “anticipated the worst” from workers and were surprised that there was “virtually no criticism whatsoever” from employees, both union and non-union — crediting not just the equitable plan but also the communications effort that was part of the transition.
Key takeaways from the process, said Seltz and Nicholas Vollrath, manager of retirement plans and M&A, were:
* Don’t underestimate the time required to craft an effective design or to get necessary stakeholder approval.
* Don’t underestimate the time needed to define the requirements and adjust recordkeeping systems.
* Consider timing the freeze with other benefit changes or other initiatives.
* Involve a broad team to address various topics (including legal, accounting, finance, etc.)
* Make sure participants know the difference between a pension freeze and a pension termination.
* Consider whether changes impact union workers, if any.
* In communications, make sure to include the rationale for the change and be straightforward about it. Also balance the need to provide advance notice of the change with sufficient details of the change.
* Don’t avoid addressing uncomfortable topics (such as benefit reductions).
* Include non-experts on the communications team so they can help frame the message to workers who are not as knowledgeable about financial issues.