Print this article | Return to Article | Return to CFO.com
About 150,000 employees will be affected by a move that will increase compensation costs at the financial services giant.
Stephen Taub, CFO.com | US
November 6, 2006
Citigroup is the latest among a growing number of very large, old-line companies to alter its pension plans. The financial services giant plans to stop contributing to its main U.S. pension plan beginning in 2008, according to Reuters, which claims to have seen an internal memo. About 150,000 employees are affected by this move.
Like most other companies that have taken similar action, Citigroup, which matches a portion of employees' 401(k) contributions, will increase the size of the match, said the wire service. Citigroup will match up to 8 percent of annual salary for 401(k) contributions made by employees who earn less than $100,000, and 6 percent for those with higher salaries, citing Michael Schlein in a memo, according to a report from Bloomberg. Previously, Citigroup matched up to 3 percent for employees earning less than $100,000.
"We will invest significantly more in our employees under this improved approach to our retirement savings," Citigroup Chief Executive Officer Charles Prince wrote in a memo to U.S. workers, according to Bloomberg. Although many manufacturing companies have frozen their defined benefit plans to cut costs, Citigroup's move will actually increase its compensation costs, noted Bloomberg.
Citigroup made these moves in part in response to requests from employees, because the changes simplify their retirement plans, explained Reuters. The wire service noted that the company had, until now, allowed most of its U.S. employees to be in a cash balance pension plan as well as a 401(k) plan.
Under a cash balance plan, the company does not promise an employee a pre-defined payout after retirement. Rather, the company makes an annual contribution to the plan, and when the employee retires, he or she can either receive a lump-sum payout or use the value of the funds to buy an annuity, added Reuters.
"It's disconcerting that all these profitable companies like IBM and Citigroup, which once led the way in doing the right thing, now think it's OK to freeze their pension plans," Karen Friedman, policy director at the Pension Rights Center, a consumer-advocacy group in Washington, told Bloomberg. "In most instances, the improvements to the 401(k) are not going to make up for losses from them having their defined benefits frozen."
A small percentage of Citigroup employees are in a legacy pension plan that will not be frozen, said Bloomberg.