SunTrust Banks will freeze its employee pension plan at year’s end, following a cost-cutting move pursued in recent years by several companies.
The change helps ensure the long-term stability of the company’s retirement program, SunTrust spokesman Mike McCoy said. The bank, he said, annually assesses the competitiveness of benefits offered.
The formula to determine pension benefits for participants will not take into account compensation earned after the end of this year. The pension plan will continue to operate, and benefits earned in the pension plan until Dec. 31 will be honored.
Starting in January, Atlanta-based SunTrust will increase its matching contribution in its employee 401(k) plans from 5 percent to 6 percent, and provide an annual discretionary 401(k) contribution to employees.
Defined benefit plans, or traditional pensions, promise fixed income for life provided by the employer, while defined contribution plans, such as a 401(k), place the burden of retirement saving and investing on employees.
Private-sector pensions are becoming less common as firms seek to control costs.
In 2008, only 3 percent of private-sector workers took part solely in a pension plan, down from 28 percent in 1979, according to the Employee Benefit Research Institute. Thirty-one percent of private-sector workers took part solely in a 401(k)-style plan in 2008, up from 7 percent in 1979.
Twelve percent took part in both types of plans in 2008.
“Since late 2005, we’ve seen a disturbing trend of healthy companies freezing their traditional pension plans and moving only to a 401(k),” said Nancy Hwa, a spokeswoman for the Pension Rights Center, a retirement security advocacy group.
Defined contribution plans tend to reduce the volatility of employers' retirement costs, and also are popular with a more transient workforce, said Steve Blakely, managing editor for EBRI. With interest rates at historic lows, the obligation of companies to fund pension plans increases because those assets don't earn as much money.
But balance sheet savings can come at the cost of retirement income certainty for employees, Hwa said.
In July, SunTrust launched a cost-cutting program to find $300 million in annual savings by the end of 2013. McCoy said the changes were not part of that program.
SunTrust’s expected pension obligation increased $253 million to $2.26 billion at the end oflast year, according to its annual filing with the Securities and Exchange Commission.
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