[Other articles below | also: Bain and Carlyle Vie For Verizon Phone Books Arm]
Verizon Communications, the nation's second-largest telephone company, said yesterday that it would freeze the guaranteed pension plan covering 50,000 of its managers and expand their 401(k) plans instead.
In freezing the plan, the company will pay workers the benefits they have already earned but will not let them build additional benefits.
Verizon said that it would also contribute less to the health care benefits of the managers when they retire. Over all, the company hopes to save about $3 billion over the next decade by taking the steps.
The moves are part of a broader effort by Verizon, a regional Bell company, to overhaul its pension and health care plans to keep up with rival cable and technology companies that typically pay lower salaries and provide fewer benefits.
"This restructuring reflects the realities of our changing world," said Verizon's chief executive, Ivan G. Seidenberg. "Companies today, including many we compete with, are not implementing defined benefit pension plans or subsidized retiree medical benefits."
Verizon's 200,000 retirees and its 105,000 current union employees will not be affected by the change. But in cutting retirement benefits for about a quarter of its work force of 215,000, Verizon may be setting the stage for concessions it may hope to gain from its unionized workers in the next round of negotiations.
The company's decision to scale back benefits for some employees echoes similar steps taken in recent months by other big technology companies, including Hewlett-Packard, I.B.M. and Motorola. Businesses across America have been trying to find ways to reduce their pension burdens and contain health care costs that are spiraling upward.
Pension experts, however, say that Verizon, which operates in 28 states and controls about 50 million phone lines, may find it harder to recruit workers as it cuts back on benefits.
As an industry leader, Verizon's move will likely prompt other Bell phone companies, including AT&T (the newly merged SBC and AT&T), BellSouth and Qwest, to consider cutting the benefits of the tens of thousands of workers they employ.
Managers at those companies currently receive a combination of guaranteed pension benefits and 401(k) investments.
"If a company as large as Verizon goes in this direction it could encourage others to do likewise to the detriment of the retirement security of millions of American workers," said Karen Ferguson, director of the Pension Rights Center, a nonprofit worker-advocacy group in Washington.
Mr. Seidenberg, however, is trying to head off financial trouble ahead. The company is highly profitable: it earned $1.9 billion in the third quarter. Verizon also has enough money to cover its $4 billion pension liability.
But Mr. Seidenberg, like other industry executives, expects retirement costs to continue rising rapidly. Verizon is also about to absorb 30,000 new workers when it completes its purchase of MCI, the long-distance provider, in the coming weeks.
With the changes announced yesterday, Verizon's managers will receive pension benefits more in line with those given to the 53,000 workers at Verizon Wireless, the company's mobile phone subsidiary, which is not unionized. Only a tiny portion of MCI's workers are unionized and employees there are offered only 401(k) retirement plans.
Verizon said that it would freeze the defined benefit plans of its managers after June 30, 2006. Managers will also receive an additional one-time contribution to their pension plans equal to the amount Verizon would have contributed during an 18-month period.
The money already set aside for retirement will continue to accrue interest for workers with certain plans.
After July 1, Verizon will match every dollar managers contribute to their 401(k) up to 6 percent of their salary. Verizon may raise its match to $1.50 for every $1 contributed by the employee if the company reaches certain financial targets.
Verizon currently matches up to the first 5 percent of an employee's salary. Many other companies do not match employees' contributions dollar-for-dollar.
Verizon pays 50 to 80 percent of the health care premiums for retired workers who worked 15 to 30 years at the company. After July 1, workers with fewer than 15 years at Verizon will never become eligible for the retiree health benefits, though they will have the option of paying for a health plan themselves.
Karen Friedman, the policy director for the Pension Rights Center, expected Verizon workers "to hit the roof over this" because 401(k) plans are less predictable than defined benefit pension plans, which are guaranteed by the government.
Verizon's unionized employees receive both a pension, with the level of benefits tied to a worker's salary and years of service, as well as a 401(k) plan.
"Retirement security is very important for our members, along with health care, so in bargaining, we work hard to safeguard these benefits," said Candice Johnson, spokesperson for Communications Workers of America.
Stephen Kamman, an analyst with CIBC World Markets who covers telecommunications equipment companies, like Lucent, said, "This is the beginning of an American crisis."
Mr. Kamman said major companies were cutting benefits because they can and they have to.
"These promises they made are not binding," he said. "Companies are finding that if they keep their promises they are at a disadvantage to companies that didn't make promises. They're doing the right thing by their shareholders and their legal obligations. But all it's highlighting that we need a different solution" to taking care of retirees.
Verizon is the latest in a long string of companies to decide to halt the growth of its pension plan either to remain competitive, save money or reduce exposure to regulatory uncertainty. In the last year or so, Sears, Roebuck, FleetBoston Financial, Halliburton and Aon have joined many notable technology companies in making the move.
Watson Wyatt, the big consulting firm, reviewed the 627 largest companies with pension plans last July and found that 71 of them had either frozen or terminated their pension plans, up from 45 companies the previous year.
When Sears froze its pension plan last January, it said it had to do so because it was competing with other large retailers, like Wal-Mart, that did not offer pensions to workers. Unlike Verizon, Sears gave older workers the option of staying in the existing pension plan, but offered them sweetened 401(k) benefits as an incentive to opt out. Sears froze the pension plan to new employees entirely.
Freezing a pension plan differs from terminating it, a more radical step. When a company terminates a pension plan, it usually pays a life insurance company a big up-front premium to take over the plan entirely. That takes the plan off the company's books, ending forever the company's responsibility for financing it.
When a company freezes a pension plan, it stops the workers from earning any new benefits but keeps control over the plan itself, putting in more money as needed as workers retire and claim their benefits.
But the company gets certain financial advantages from retaining its ties to the frozen plan. Assumed pension investment earnings can be factored into corporate income each year, for example. And when a plan is merely frozen, it can theoretically be unfrozen again, once times are better.
Verizon said yesterday that it would take an estimated $97 million pretax charge against its fourth-quarter earnings as a result of its decision.
Mary Williams Walsh contributed reportingfor this article.
source: http://www.nytimes.com/2005/12/06/business/06verizon.html?pagewanted=print 6dec2005
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After Verizon, Are Pension Freezes on the Way?Other Telecommunications Companies Could Follow Verizon's Lead to Cut Costs ERIC NOE / ABC News 6dec2005
The latest battle in the heated telecom wars has claimed some significant new casualties — the pension and retirement health benefits for 50,000 Verizon management employees — and analysts say more such moves may be coming.
Verizon announced Monday it would stop making contributions to the pension plans of non-unionized managers and would instead offer them 401(k) plans, beginning in 2006.
Other big telecommunications companies are likely to make similar cost-cutting measures, said analysts familiar with the economics behind Verizon's decision.
The move raised the ire of worker advocates, but the company said its future economic picture made it necessary.
"This restructuring reflects the realities of our changing world," Verizon Chairman and CEO Ivan Seidenberg said in a statement announcing the change. "Companies today, including many we compete with, are not adopting defined benefit pension plans or subsidized retiree medical benefits."
Though Verizon currently has enough money to fund its pension obligations, the company is wary of rising health care costs and competition from companies that don't offer similar defined benefit plans, which are more expensive for companies than 401(k) plans. The pension freeze is an attempt to lower labor costs and bring them in line with those of cable television companies, analysts said.
"Verizon had no choice," said Robert Rosenberg, president of Insight Research Corp., a telecommunications industry analysis firm. "It's not the type of thing a company with great corporate values would do if it didn't have to."
But what the company called corporate realities offered little consolation to angry Verizon employees.
"You're just constantly giving back. And I realize that's how corporate America is going, but that still doesn't make it right," one Verizon employee said today outside the company's corporate headquarters in New York.
Phone Companies Competing With Cable
The telecommunications sector has been hit particularly hard over the past five years, losing workers and seeing company values drop at a disproportionate rate to other industries, Rosenberg said. The need to cut costs is a response to the leaner financial times, he said.
The cost-cutting has also been accelerated by efforts to combine phone, television and Internet service into digital communications packages. Phone companies now compete with cable providers in the race to offer those services to residential customers. The telephone and cable companies have spent recent years working hard to upgrade their technology and slash their overhead.
"They're spending millions to leapfrog the capabilities of the cable providers," Rosenberg said. "These guys are going to offer all of those digital services, and wireless as well, and they're all playing for the same residential market."
Cable companies' work forces for the most part are not unionized, giving them lower labor costs than such traditional telephone companies as Verizon, SBC and BellSouth, all of which have largely unionized workers.
"Verizon is going to offer cable shortly, and they want to make sure they align their cost structure with the cable companies. That's why they're doing this," said Bob Rock, analyst with John Hancock Advisors.
Other Telecom Companies Could Follow Suit
By shifting retirement benefits from the fixed, defined benefits offered in pensions to 401(k) plans, Verizon hopes to save $3 billion over the next 10 years. The pension freeze announced on Monday affects only management, not union employees. But it's possible that similar restructuring of retirement plans will be a part of any future union negotiations.
"For management, they can cut their retirement and benefits at will. For Verizon, a significant proportion of their workers are union, so any changes to their benefits are going to have to be negotiated through collective bargaining," Rock said.
Retirement benefits, particularly health care costs, have become a huge issue across a variety of industries this year. U.S. automakers, in particular, have spoken of the burden of paying large health care benefits to retired workers. And the airline industry has experienced similar problems.
"The bottom line is premiums are going up double digits every year, and they're in the same situation as the car companies and some others," Rock said of the telecommunications industry.
Earlier this year, SBC said it would restructure its pension plan in an effort to lower the cost of its pension liability. And it's likely that competitors like BellSouth and Qwest Communications could take similar steps to keep their cost structures in line, Rosenberg said.
"Chances are, when they see this they'll all be huddling up," Rosenberg said. "This most likely will be the first of several similar announcements that we'll see."
source: http://abcnews.go.com/Business/story?id=1378711&page=1 6dec2005
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Verizon Spinoff a Possibility for Cash Concerns - Chicago Tribune 6dec2005
From Tribune news services
Verizon Communications Inc. may sell or spin off its phone book and online directories business to raise cash as it nears completion of its purchase of MCI Inc. and invests billions in rewiring its telephone network to deliver cable TV and speedier Internet access.
Also Monday, the company said it would stop making contributions to the guaranteed pension plan covering 50,000 of its managers and offer them 401(k) plans instead. Verizon also said that it would contribute less to the health-care benefits of 70,000 managers and 37,000 Verizon Wireless workers when they retire.
Overall, the company hopes to save about $3 billion over the next decade with the changes in its benefit structure.
Verizon, laden with long-term debts of $34.4 billion, disclosed Sunday it was reviewing alternatives for Verizon Information Services. The unit provides sales, publishing and other services for 1,750 directory books, including 1,200 Verizon-branded publications with a circulation of 121 million copies.
While Verizon did not say how much VIS might be worth, published reports said the business could be valued at more than $17 billion. Analysts estimated the unit will show an operating profit of $1.8 billion for 2005.
"With the MCI merger expected to close shortly, this is the right time for us to optimize our business mix and unlock value," said Verizon Chief Executive Ivan Seidenberg.
source: http://abcnews.go.com/Business/story?id=1378711&page=1 6dec2005
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