AKRON, OH — Goodyear Tire & Rubber has announced a series of changes to its U.S.-based retail and salaried employee pension and retiree benefit plans, aimed at increasing its global competitiveness while significantly reducing its cost structure.
"These changes 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. "They are also consistent with our goal of reducing costs in excess of $1 billion by the end of 2008."
The changes will be phased in over a two-year period, with most benefit plan changes effective in 2008 and the most significant pension plan changes in 2009. As a result, Goodyear expects after-tax savings of $80 million to $90 million in 2007, $100 million to $110 million in 2008, and $80 million to $90 million in 2009 and beyond.
The actions are expected to reduce the company’s pension obligation by approximately $100 million and its obligation for other post retirement benefits by about $525 million assuming interest rates used to value the obligations remain similar to those used at Dec. 31, 2006.
Goodyear plans to record a one-time after-tax charge of approximately $65 million related to these actions in the first quarter of 2007.
Benefit plan changes effective Jan. 1, 2008, include:
· Increasing the amounts that current and future salaried retirees contribute toward the cost of their medical benefits,
· Redesigning retiree medical benefit plans to minimize cost impact on premiums,
· Closing the company’s Medicare supplement plan to new entrants and
· Discontinuing company-paid life insurance for salaried retirees.
The pension changes include:
· Freezing the current salaried defined benefit pension plans as of Dec. 31, 2008,
· Replacing the defined benefit pension plans with enhanced 401(k) savings accounts with varying levels of company contributions for current associates beginning Jan. 1, 2009 and
· Introducing 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.
"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," Geier said.
According to Geier, there is a strong movement on the part of major corporations away from defined benefit pension plans and toward defined contribution plans. Additionally, the recently enacted Pension Protection Act is expected to accelerate the migration away from traditional defined benefit pensions.
Details of the plan changes will be directly communicated to the affected salaried associates and retirees over the next several weeks. Moving forward, Goodyear associates will be able to access online retirement modeling tools and investment education sessions to assist with pension and benefit decisions, and to plan for the impact of these changes.