Corporate 401(k) >$250MM - $1B
TOTAL PLAN ASSETS/PARTICIPANTS: $311.3 million/2,189
PARTICIPATION RATE: 97%
AVERAGE DEFERRAL RATE: 9.4%
DEFAULT DEFERRAL RATE: 4%
EMPLOYER CONTRIBUTION: 3% base contribution, plus 50% on 10%
Owens-Illinois, Inc. (O-I), the world’s largest glass-packaging maker, decided to freeze its closed U.S. defined benefit (DB) plan for salaried employees as of last year, and it was not an easy choice.
“It goes back to a risk-mitigation strategy, to managing a major liability for the company,” says Paul Jarrell, senior vice president and chief administrative officer (CAO) at the company, which is headquartered in Perrysburg, Ohio. “I’m a defined benefit plan fan, so this decision was very difficult. But it’s unfortunate that the regulations are what they are and that they create these large financial impacts flowing through to a company’s balance sheet, which leads to shareholders needing greater stability in the managing of those assets.”
Freezing the plan, as of January 1, 2016, limited the company’s funding downside exposure. The $625 million U.S. salaried plan is 73% funded on a GAAP (generally accepted accounting principles) basis. O-I, which has 80 plants in 23 countries, continues to sponsor an active cash-balance plan for hourly U.S. employees, and a few defined benefit plans at some locations outside the U.S.
At the same time, O-I—which works with John Hancock Retirement Plan Services as the 401(k) plan's recordkeeper—decided to enhance that defined contribution (DC) plan's features. The employer increased its base contribution to employees from 2% to 3%, boosted the match from 50% on 8% to 50% on 10%, and started including bonuses in the eligible-compensation definition for the base contribution and match. The plan also bumped up its automatic design features: The initial deferral rate rose from 3% to 4%, the automatic escalation ceiling increased from 10% to 20%, and the plan launched an annual sweep to re-enroll nonparticipating employees and employees saving less than 4%. The $311.3 million plan has 2,189 participants and a 97% participation rate, with 9.4% average deferrals.
Owens-Illinois officials anticipated that some employees likely would feel happy about the retirement-plan changes, while others would not. "We have two 'bubbles' of employee populations, at each end of the age/service spectrum,' says Etta Strong, director, North America compensation and benefits. "We have a very large population of employees who have long years of service and who were in the defined benefit plan. They were used to O-I being a very paternalistic company, and we were concerned about how they would react. We also have a very large group who are newer and just have the DC plan, so we thought they would react positively."
O-I told employees about the defined benefit plan change more than a year in advance. The company's multi-channel approach included holding on-site meetings during work hours, which ran roughly 45 to 60 minutes. At the same time, the plan’s adviser, PearlStreet Investment Management, did one-on-one meetings for employees who wanted a personalized discussion. Those unable to attend a sit-down meeting had the option to call the advisory firm to talk instead. The one-on-ones usually lasted about a half-hour, and they included a comprehensive retirement-income projection for the employee, as well as advice to bridge any savings gap. —Judy Ward