Verizon Communications' decision to reduce retirement plans for managers may pressure larger competitor AT&T to follow suit. Verizon, the second-biggest U...
Verizon Communications’ decision to reduce retirement plans for managers may pressure larger competitor AT&T to follow suit.
Verizon, the second-biggest U.S. telephone company, said Monday it will make the cuts to save $3 billion over 10 years. Its 50,000 managers will stop earning pension credits after June 30, and those hired after Jan. 1 won’t earn benefits.
BellSouth made similar changes about five years ago.
U.S. employers are seeking ways to curb rising pension costs. AT&T is “constantly evaluating” its benefit plans, spokesman Walt Sharp said Tuesday.
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“It’s going to put pressure on all” phone companies, said George Reed-Dellinger, an analyst at Washington Analysis.
The industry also faces competition from cable companies that have lower benefit costs and are nonunion, he said.
Verizon, which will have a work force of 240,000 after it completes its deal for MCI, made the cuts to bring the company’s cost structure in line with competitors who don’t have defined-benefit plans, spokesman Peter Thonis said.
SBC Communications, which bought AT&T in November and adopted its name, already cut its pension costs in January by freezing a cash-balance plan for 55,000 managers and moving them back into a traditional retirement program. SBC and AT&T are combining their businesses.
“It’s inevitable that AT&T looks at doing something to bring down the costs,” said Daniela Spassova, who helps manage $153 billion at Principal Global Investors, which holds Verizon and AT&T debt. “I think we’ll see it next year.”
With 162,000 employees at the end of 2004, the cost reduction for AT&T should be similar to Verizon’s, Spassova said.
AT&T’s pension is overfunded, with a surplus of $1.6 billion at the end of 2004, spokeswoman Anne Vincent said.
Verizon’s pension plan was overfunded by $1.7 billion at the end of 2004, spokesman Robert Varettoni said.
Chief Executive Ivan Seidenberg is seeking ways to help pay for services such as television and high-speed Web access.
Verizon’s pension changes won’t affect current retirees.
Managers with fewer than 13.5 years at Verizon won’t get subsidized pension medical benefits. As compensation, Verizon will increase its contribution to employees’ 401(k) savings plans.
It expects to record a $60 million charge this quarter.