Dow Chemical intends to close its defined benefit(DB)pension plan to new workers in the United States beginning next year.
New employees will be offered a cash balance account, which provides an annual accumulation of funds at 5% of pay, plus interest.
“Dow began to evaluate the full spectrum of retirement options available after the U.S. government passed the Pension Protection Act last summer,” says a statement from Dow. “The company chose this new method of retirement delivery because it allows Dow to maintain its benefit at a competitive level yet dampen pension expense volatility.”
Active participation in DB plans has steadily declined over the years. Just 21 million Americans were enrolled in such a plan in 2005, according to a Government Accountability Office report, which came out earlier this year. That’s down 28% from the 29 million enrolled in DB plans in 1985.
Meanwhile, participation in DC plans has jumped 67% to 55 million in 2005 from 33 million two decades earlier.
The changes to Dow’s pension plan will not affect current eligible retirees or active salaried employees in the U.S. hired before 2008.
Once the changes are implemented, employees hired after January 1, 2008 will not be eligible for retiree medical and retiree life insurance.
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