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June 26, 2006 02:00 AM

Bandag boards bandwagon, alters pension benefits

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    Here's a sign of the times: Bandag is changing its pension plan for its employees. Not for the benefit of the employees, but for the benefit of Bandag.

    Specifically, the company is freezing its previous pension plan and installing what amounts to a 401(k), where the employee contributes to the retirement fund and Bandag matches it, up to a certain amount. Any new hires come in under the 401(k).

    In essence, an employee now must pay for part of a benefit Bandag previously provided in its entirety.

    The tread rubber and retread system franchiser isn't breaking new ground, and isn't changing out of maliciousness or greed. No, Bandag is just following a popular approach by businesses to get out from under future debilitating legacy costs.

    The issue of unfunded pensions is hardly confined to rubber industry companies. A Standard & Poor's study of companies in the S&P 500 showed that in 2005, they were $140 billion in the red in funding pensions.

    Bandag's situation, and its actions to deal with it, is pretty common. The firm said its pension liabilities have escalated rapidly, and something had to be done. Bandag doesn't want to join the companies that end up dumping their pension liability on the Pension Benefit Guaranty Corp.-the court of last resort, in a sense, in which the taxpayer foots the bill for a company's failure to cover its obligation. That's what happened a few weeks ago with Plymouth Rubber, when a bankruptcy court ruled the PBGC must pay $12 million in Plymouth's pension costs.

    At Bandag, by changing from a defined pension plan to a 401(k), the firm's employees now will be responsible for the investment of the retirement funds and pay half the contribution made to the plan. In the long run it will make a financially healthier Bandag.

    It also probably will lower, to an extent, the standard of living of Bandag employees when they retire. Such is American business today.

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