Goodyear expects to fully fund and then freeze the pensions of its 8,000 or so union factory workers sometime in the next four years.
The option allowing Goodyear to freeze pensions for its United Steelworkers employees was part of the recently ratified four-year contract between the Akron tire maker and the union. The estimated cost to fully fund the pension plan: perhaps $1.1 billion, depending on interest rates and other factors, at the end of this year.
Union workers in return would be “transitioned” to a 401(k) retirement plan in which they would be required to contribute part of their earnings and also get a company match. Goodyear’s longtime salaried employees had their pensions frozen in 2008. New salaried employees do not get a pension; instead, they get a 401(k) plan. Goodyear borrowed $900 million earlier this year to fully fund its salaried employee pensions.
The new master contract, which covers Goodyear’s unionized U.S. factories, was ratified by an overwhelming majority, the Steelworkers said last week. The company and union agreed on a contract just hours before the previous pact was to expire on July 27.
The new pact has important protections for Steelworkers including the pension plan, said Jim Mason, the Goodyear unit president for USW Local 2 in Akron. The Akron local has about 300 active members who make Goodyear Eagle race tires for NASCAR’s top series.
“Our biggest concern was getting the pension fully funded and making sure it was funded,” Mason said. “Fully funding [the pension] was on our radar. ... In my opinion, it was a very fair and equitable contract.”
Goodyear Tire & Rubber Co.’s top executives on Tuesday explained how a pension freeze may work and how it would benefit the company’s finances if implemented. The company said it will use a combination of debt and cash to fund the pension.
Rich Kramer, Goodyear’s chairman and CEO, said the company’s intention negotiating this year was to build upon previous agreements dating to 2003.
“We believe our new four-year agreement meets that goal, allowing us to enhance our competitiveness even amidst continuing economic challenges,” Kramer said in prepared remarks during a conference call with industry analysts.
The contract accomplishes three things from Goodyear’s point of view, Kramer said:
• It allows Goodyear to fund and freeze the union pension plan.
• It reduces maximum profit- sharing payments while lessening volatility of the previous plan.
• It continues medical cost sharing and maintains overall wage and benefit costs consistent with the previous contract.
“We view this agreement as the next action in a continuous process and a positive step on our journey toward sustained value creation in North America,” Kramer said.
Goodyear is required to keep the union pension plan funded at a minimum level of 97 percent.
“For those who currently are participants in the pension plan, this agreement represents a very different way of providing retirement income,” the union’s contract summary says. “Because of changes to pension laws and exceptionally low interest rates, defined benefit pension plans across the country have suffered since the Great Recession, and Goodyear’s plans are no exception.
In 2011, plan funding fell to 65 percent despite Goodyear putting hundreds of millions of dollars into the pension,” the union summary said.
The Steelworkers said that if Goodyear exercises its right to fully fund the union pension plan and then freeze it — meaning members no longer accrue additional pension benefits — the company will increase its 401(k) contributions to individuals.
The annual contribution amounts differ by age:
• $2,100 for people less than 35 years old
• $2,300 for ages 35 to 40
• $3,300 ages 40 to 45
• $4,300 ages 45-50
• $6,000 ages 50-55
• $8,000 ages 55 and older.
The plan is based on information that the average Goodyear worker retires at age 60 and lives an additional 20 years, the union said.
Steelworkers will have the option of taking their monthly pension when they retire; taking the pension as a lump sum; or taking half the pension as a lump sum and half as a monthly pension.
Also under the new contract, Goodyear promised that it would not close any of its U.S. plants and that it would invest $700 million to upgrade and improve its factories over the next four years. Goodyear will be able to reduce employment by up to 15 percent at each of its plants, including 230 “discretionary” buyouts this year. Goodyear also can offer an additional 400 buyouts over the next four years.
The new contract also reduces wage and other benefit disparities created under a two-tier plan created under a previous contract, Mason said.
Steelworkers have opted to put profit-sharing money from Goodyear into its independent health-care trust, called by the acronym VEBA, for retirees, Mason said. The union has the discretion on what funds to put the profit-sharing money into: Goodyear has no say on where the money goes, he said.
The new contract caps Goodyear’s profit-sharing amount at $35 million a year, other than in 2017, to a maximum of $140 million over the four years.
Goodyear put a one-time payment of $1 billion into the VEBA, or Voluntary Employees’ Beneficiary Association, that was created to settle a lengthy strike during 2006 contract negotiations.
Jim Mackinnon can be reached at 330-996-3544 or firstname.lastname@example.org.