DuPont Ditches Traditional Pension Plan, Shifts to Enhanced 401(k) Plan

The Wilmington-based chemical company DuPont has made a significant change to its employee benefits package, announcing that it will close its traditional pension plan to new hires and reduce contributions to the plan for current employees. This move follows a trend among major U.S. companies, including Unisys Corp., International Business Machines Corp., Alcoa Inc., Hewlett-Packard Co., Verizon Communications Inc., and Sprint Nextel Corp., which have also abandoned traditional defined-benefit plans in favor of 401(k) plans. Proponents of the defined-benefit plan argue that they provide a more stable income stream for retirees, while critics say that they can be expensive and lead to large underfunded balances when the stock market declines.

Key Takeaways:

• DuPont will close its traditional pension plan to new hires, who will instead receive a base contribution of 3% of their pay in a personal 401(k) account and a company match of the first 6% of pay saved in a 401(k).
• Current employees will retain their accrued defined-benefit pensions, but company contributions to the plan will be cut by two-thirds, starting in 2008.
• The changes affect over 30,000 DuPont U.S. workers, but do not affect the company's 66,000 U.S. retirees.
• The shift to a 401(k) plan is aimed at reducing DuPont's costs and improving competitiveness in attracting new employees.
• The company will also eliminate a subsidy for retiree health-care insurance for new hires.

Statistics:

• DuPont has 30,000 U.S. workers affected by the changes.
• The company's 401(k) plan will provide a base contribution of 3% of pay and a company match of the first 6% of pay saved in a 401(k).
• Company contributions to the traditional pension plan will be reduced by two-thirds in 2008.
• DuPont's defined-benefit plan has been declining in popularity, with 29,000 plans remaining in 2004, down from 115,000 plans in 1985.

Sources:

• "DuPont Co. to Close Traditional Pension Plan for New Hires", by Bob Fernandez, The Philadelphia Inquirer, August 29, 2006.
• "DuPont: Company Profile", by Chicago Stock Exchange, 2006.
• James Klein, president of the American Benefits Council, cited in "DuPont to Abandon Pension Plan", by Bob Fernandez, The Philadelphia Inquirer, August 29, 2006.
• "Defined-Benefit Plans: Trends and Developments", by the Employee Benefit Research Institute, 2004.