Reply #22: Trucker hopes to back pensions with property

[Demeter]

http://www.ft.com/cms/s/0/c90029dc-2855-11de-8dbf-00144feabdc0.html

By Deborah Brewsterin New York

Published: April 13 2009 19:17 | Last updated: April 13 2009 19:17

YRC Worldwide, the biggest trucking company in the US, is negotiating with its unions to allow it to suspend cash payments to its defined-benefit pension plan and to pledge real estate as collateral instead.

It would be the first major US company to use its real estate to help meet its pension obligations. The talks are also a strong sign that corporate payments to defined benefit plans, usually considered sacrosanct, could be reduced or suspended as a result of the economic downturn.

The largest corporate pension plans, which provide employees with a defined benefit on retirement, have lost more than $330bn since January 2008, leaving companies under pressure to make up the shortfall, according to Milliman, a consulting firm.

Companies are struggling to make payments to the plans while their profits are plummeting. YRC said it had to pay $34m to $45m a month to its plan, while its freight volumes had fallen by 29 per cent in the latest quarter compared with a year ago.

It said it was finalising talks with the International Brotherhood of Teamsters “to provide certain of the company’s real estate as collateral to its ... defined benefit plans in lieu of making payments for certain to-be-agreed-upon months”. The Teamsters declined to comment.

More than a third of US companies have cut back or eliminated matching payments to employees’ defined-contribution pension plans since January 2008, according to Spectrem Group, a research firm.

Defined contribution plans, called 401(k)s after the section of the tax act which governs them, require employees to pay into their own plans, with their company typically matching contributions up to a certain level. Saks, General Motors, Coca-Cola Bottling, FedEx, Motorola and Sprint Nextel are among the companies which have suspended such contributions in recent months.

George Halper, the president of Spectrem, said: “This ... raises questions about the ability of the current generation of working Americans to adequately fund their retirements.”

Among employees who have 401(k) plans, 20 per cent have reduced their contributions, and more say they intend to over the next 12 months, said Spectrem.

The trend has in recent weeks spread to the UK, where Aon became the first large UK company to cut payments to its workers’ defined contribution plan.