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When Hewlett-Packard Co. announced Tuesday that its massive restructuring would include an overhaul of its retirement plans, the technology giant joined a long line of companies trying to cut costly pension obligations that originated in another era. The traditional “defined-benefit” pension plan, in which a company invests a pool of money that is used to dole out checks to retired employees based on their final salaries, long has been waning. In 1979, 61 percent of employees with pensions were on a defined-benefit plan, but by the late 1990s that had dropped to 13 percent, according to an analysis by the Center for Retirement Research at Boston College. The biggest reason for the decline, companies contend, is that the plans have too many uncertainties: The vagaries of stocks and other investments change the amount — anywhere from zero into the billions — that businesses must contribute to their pension funds in a given year. Analysts also point out that those plans often carry higher administrative costs than newer retirement programs. Companies have more recently shifted that uncertainty onto employees, such as with 401(k) plans in which workers get a defined contribution they are responsible for investing. Another — though controversial — option is a hybrid “cash-balance” system that gives workers interest-bearing funds that they can take with them if they leave the company. Even so, many big, old-line businesses such as HP are still saddled with the complexities of paying defined benefits to older and retired workers — a category increasing with the aging of the baby boom generation. Consider the case of UAL Corp.’s United Airlines, which recently defaulted on $9 billion in pension obligations while in bankruptcy and shifted them to the federal government. Hewlett-Packard — whose revered founders were considered standard-setters in employee relations — stopped offering its traditional pension plan to workers hired after Jan. 1, 2003. From then on, new hires could get a cash-balance plan. Even so, the company had to contribute $1.2 billion to its pension and post-retirement benefit plans in 2003 and $613 million in 2004. In the company’s last annual report, HP said it expected to spend $910 million meeting those obligations in 2005. Now, HP will offer just a 401(k) plan — albeit a more generous one than it has now — to U.S. workers hired after Jan. 1, 2006. The change will also affect employees whose age and years of service do not total 62, though they will continue to be eligible for pension benefits they’ve already accrued. HP spokesman Ryan Donovan said the company analyzed the benefits packages of its competitors and businesses in other industries and determined “pension plans are kind of a thing of the past.” Indeed, Hewlett-Packard’s main rival, International Business Machines Corp., decided last year to exclude new workers from its cash-balance plan and offer them only a 401(k). The cash-balance plan had been the subject of a federal lawsuit –settled for up to $1.4 billion — by employees who contended that IBM committed age discrimination in the way it deployed the plan. Even with the changes, IBM expects to spend up to $1.1 billion this year to shore up its defined-benefit pension plans for international workers, and already contributed $1.7 billion to its U.S. fund in January. IBM’s chief financial officer, Mark Loughridge, said Monday that pension costs continue to rise. All this can become a drag on earnings in an ever-more lean and competitive marketplace in which younger, smaller rivals don’t carry pension responsibilities. (Of course, when investments were skyrocketing in the go-go 1990s, surplus in many companies’ pension funds helped pad the bottom line.) Pat Kendall, vice president for defined-benefits at Diversified Investment Advisors, a consulting firm specializing in retirement plans, said it used to be common for a corporate pension plan to cost 4 percent to 8 percent of payroll, but now that sometimes exceeds 20 percent. “It’s too bad,” said Alicia Munnell, director of the Boston College center. “I understand the forces behind employers’ not wanting to maintain their defined-benefit plans, but an employer is better able to shoulder risk than an individual. We’re putting all the risk on the individual employee.” Copyright 2005 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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