Alcoa to Freeze US, Canada Pensions by 2021

Aluminum producer will transition employees to defined contribution plans.

In its recent annual report, aluminum producer Alcoa said it will freeze its US and Canada salaried defined benefit pension plans, effective in 2021, and move its workers into defined contribution plans. 

Alcoa said it was making the changes to its defined benefit pension plans, and to other post-employment benefits, in a move to strengthen the company’s balance sheet by reducing its liabilities.

The company said that effective Jan. 1, 2021, salaried employees in the US and Canada will no longer accrue retirement benefits for future service under defined benefit pension plans. It added that the US and Canada account for Alcoa’s largest portion of liabilities for pension plans and other post-employment benefits.

As a result of the move, approximately 800 affected employees will be transitioned to country-specific defined contribution plans. The company will contribute 3% of affected participants’ eligible earnings to defined contribution plans in addition to its existing employer savings match.

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It also said that benefits earned from the defined benefit pension plans through Dec. 31, 2020, will be protected and included in benefits provided to the employees at the end of their employment with Alcoa, or when they become eligible for retirement, as defined by the plans. Participants already collecting benefits under the pension plans, and those currently covered by collective bargaining agreements, will not be impacted by the changes, the company said.

Additionally, Alcoa said it plans to make discretionary contributions, beyond required contributions, of approximately $300 million to the US and Canada defined benefit pension plans in 2018. In connection with the discretionary contributions, the company will make annuity purchases to lower risk and cost while maintaining minimum required contribution levels.

Also effective Jan. 1, 2021, Alcoa will cease contributing to pre-Medicare retiree medical coverage for US salaried employees and retirees.  As a result of both actions, Alcoa said it expects to reduce its liabilities from pensions and other post-employment benefits by $35 million, and record non-cash non-operating income of approximately $20 million in Q1 2018.

Earlier this month Arconic Inc., a specialty metal engineering and manufacturing firm that was spun off from Alcoa in 2016, announced plans to freeze its US defined benefit pension plans, affecting approximately 7,900 US workers.

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Pension Reform Hot Topic for Illinois Gov’s State of the State Address

State representative hopes for reversal of population migration trend to battle pension crisis.

State pension is one of several topics Illinois lawmakers hope Gov. Bruce Rauner will tackle later this month in his  State of the State address, the Illinois News Network reports.

In terms of tackling the pension debt, which currently stands at $130 billion in unfunded liabilities, State Rep. Mark Batinick and State Sen. Andy Manar know the road will be rough, with Batinick having proposed a buyout plan last year.

Batinick’s plan, which allows inactive members of pension systems an opportunity to receive  a lump-sum payment that can not only then be rolled over into other retirement accounts, but may also be included in a member’s will, seeks to save taxpayers billions. However, state residents are leaving at an alarming rate due to high taxes that help cover the pension deficit, and Batinick stressed that in order for pensions to be preserved, the state needs to retain its population.

“The more people you keep in this state,” Batinick told the Illinois News Network, “the more that that legacy cost is spread out amongst more people. And the more economic growth you have, the easier it’s going to be to deal with the pension crisis.”

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Manar added that if and when pension reform talks begin, affected employees should be involved in the negotiation process.

In addition to closing the state pension gap, educational funding and partisan gridlock were also among the topics lawmakers expect Rauner to address.

Rauner, who is up for reelection later this year, is expected to deliver his State of the State address January 31, with his state budget address to follow two weeks later on February 14.

 

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