AKRON (Feb. 28) — Goodyear next year will freeze its defined benefit pension plans for employees and replace them with 401(k) savings accounts as part of several moves to save about $100 million on pension obligations and $525 million on other post-retirement benefits.
The Akron-based tire maker said the changes are part of its plan to cut costs by more than $1 billion by the end of 2008.
"These changes will allow us to continue to provide the kind of compensation packages that are competitive and will attract and retain talented associates," said Kathleen Geier, senior vice president of human resources. "The changes that we´ve made were only made after careful consideration of alternatives, recognizing that there will be varying levels of personal impact depending on the circumstances of each associate and retiree."
The changes will be phased in over a two-year period, the firm said, with most benefit plan changes effective next year and many pension plan changes effective in 2009.
Goodyear expects the moves to save $80 million to $90 million this year, $100 million to $110 million in 2008 and $80 million to $90 million in 2009 and later. The company will take a one-time charge of $65 million for the actions in the first quarter.
Among its benefit plan changes, Goodyear plans to:
—increase the amount that current and future salaried retirees contribute to the cost of their medical benefits;
—redesign retiree medical benefit plans to minimize the cost impact on premiums;
—close the company´s Medicare supplement to new entrants; and
—discontinue company-paid life insurance for salaried retirees.
On the pension plan side, Goodyear plans to:
—freeze the current salaried defined pension plans as of Dec. 31, 2008;
—replace the defined benefit pension plans with 401(k) accounts with "varying levels of company contributions" for employees, beginning Jan. 1, 2009; and
—Introduce company-matching contributions for the salaried 401(k) savings plan at 50 percent of the first 4 percent of annual pay, beginning Jan. 1, 2009.
Goodyear also recently was able to reduce similar costs for its unionized employees in North America as part of its new contract with the United Steelworkers. As part of the pact, Goodyear will secure retiree medical benefits through an independently administered voluntary employees´ beneficiary association with a $1 billion contribution from the company. Of that contribution, $700 million will be in cash and $300 million in additional cash or common stock at the company´s option.