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.
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.