Energy Future Holdings to terminate pension for some employees
Energy Future Holdings, the former TXU Corp., plans to freeze its pensions effective Sept. 25 and terminate them by year's end. Benefits due affected employees will either be paid in a lump sum or as a monthly annuity, it told workers in a letter dated Aug. 7. The company said it will contribute about $200 million to its pension plan to bring up to fully funded status and distribute assets due at year's end. A company spokesman said the move affects less than a third of its workforce. Not affected are employees covered by collective bargaining contracts and employees of EFH's Oncor Electric Delivery subsidiary. In a filing with the Securities and Exchange Commission, EFH said it expects to take a charge of $150 million in the fourth quarter to cover the expense of the move.
TXU had closed its traditional defined benefit pension to new hires in 2002, moving to a "cash balance" plan, which functions mostly like a traditional pension. But with its buyout in 2007, the company also closed the cash balance plan to new hires in favor of a 401(k) savings plan. The 401(k) plan continues with an improved employer match of 100 percent (up from 75 percent) of worker contributions up to 6 percent of their pay, according to the letter.
Pension consultants have expected employers to terminate more pensions in 2012 thanks to a federal rule change that allowed employers to use generally higher interest rate assumptions to calculate the benefits owed. Using higher interest rates reduces employers' costs of making a lump sum payout or buying an annuity on employees' behalf. (Vanguard Investments has a good explainer here. Kiplinger, the personal finance advisor, has a report on the trend here.)
-- Jim Fuquay