If you're lucky enough to still have a pension plan, it's an endangered species after last week's move by Hewlett-Packard. Buried in the details...
If you’re lucky enough to still have a pension plan, it’s an endangered species after last week’s move by Hewlett-Packard.
Buried in the details of a restructuring program cutting 14,500 jobs was a small reference to a decision by HP essentially dismantling its pension program to save $300 million a year. New employees won’t get any pension, and many current employees will see their benefits shriveled by the time they reach retirement.
HP Chief Executive Mark Hurd, is only (pardon the pun) running with the herd. Big employers nationwide are axing pension plans, shifting to programs such as 401(k)s where employees have to fund their own retirement.
It’s hard to argue with HP’s urge to cut retirement costs. Intel and Dell, for example, don’t offer any kind of pension plan. In December, IBM announced a cutback similar to HP, closing its pension plan to all new workers.
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In a message to employees, Hurd sought to justify the move: “Our U.S. retirement programs are very expensive and the costs significantly exceed those of our competitors. … This is a structural cost that HP must address now.”
But I’m still sad to see how far HP has fallen. The lamented and long-gone “HP Way” set a precedent for treating employees with respect and delivering the best possible benefits — not seeking to blend into the pack.
But perhaps it’s now the Hurd Way rather than the HP Way. Hurd, CEO since April, stuck closely to a playbook he wrote last year while running NCR in Dayton, Ohio.
During a conference call with Wall Street analysts last week, Hurd recited almost word for word from a Securities and Exchange Commission filing that NCR made in May 2004 to explain why the company was gutting its pension plans.
In both instances, Hurd said his company wanted retirement benefits to be “more closely aligned with competitive market averages.”
Because of Hurd’s well-practiced punch, all HP employees in the United States — including 9,000 in the Bay Area — will be divided into three separate and unequal groups:
• The Lucky 62s: If your age and years of service at HP total at least 62, you’ll still get the full pension promised to employees for many years.
• The New and Neglected: Anyone who joins HP after Jan. 1, 2006, gets no pension. HP did sweeten its 401(k) plan as a consolation prize. It will now match dollar for dollar the first 6 percent of salary put into a 401(k) each year, up from 4 percent previously.
• The Muddled Middle: If you’re 45 and have spent 16 years at HP, your magic number is 61. Your pension is frozen, with no more contributions going into the fund from HP. It could have been worse, of course. Hurd could have pulled the plug on everyone — something that’s happened at other big companies recently.
Hewitt Associates, a benefits-consulting company, has dug up some alarming trends among big employers. The number offering so-called “defined-benefit” pension plans, which provide a monthly check on retirement, dropped to 68 percent in 2004 from 91 percent in 1985. The percentage is even lower among small or medium-sized employers.
What’s more, 27 percent of big employers surveyed last year said they were likely to start excluding new hires from pension plans starting in 2005, and 18 percent plan to freeze pension contributions for some or all employees.
It’s clear employees are getting short-changed by these transformations — otherwise HP wouldn’t be able to trumpet $300 million in savings.
Hurd perhaps had no choice other than to do what he did.
But it’s a shame he couldn’t show some compassion, or some determination to help society as a whole tackle the increasingly knotty problem of how ordinary hard-working people can retire without falling into poverty.
Mike Langberg is a columnist for the San Jose Mercury News.