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