Posted on 09/10/2001 3:51:07 PM PDT by Willie Green
For education and discussion only. Not for commercial use.
First it was the Chrysler Group. Then General Motors Corp. Most recently it was Delphi Automotive Systems Corp., the world's largest auto-parts maker.
As falling car and truck sales lead to shrinking profits, all three chose to save millions of dollars by reducing or eliminating their contribution to white-collar employee 401(k) programs.
Chrysler capped its 401(k) matching contribution for higher-paid workers while GM cut its match program by 25 percent. Delphi suspended its matching plan indefinitely, gutting a generous plan that matched 70 percent of the first 6 percent an employee contributed from a paycheck.
About 85,000 white-collar employees in the United States were affected by these auto giants' decision to cut back on contributions to 401(k) plans, which are tax-deferred retirement savings programs.
If, in fact, trends come in threes, then employees at Ford Motor Co. and the thousands of area auto supplier workers should fear their 401(k) savings programs are next, say auto and financial experts.
It's a typical move for automakers, especially as auto sales slow and unemployment jumps, making employers more concerned about cutting costs than retaining or attracting workers with generous benefits.
"It's a quick and easy way to cut some costs. It's not like a defined pension plan at GM or Delphi, which is hard to modify," said Dana Muir, a University of Michigan business professor, who noted Lucent Technologies and Kmart Corp. also made cuts. "As the job market turns in the employer's favor, and you see car sales head down, you expect auto companies to do these things."
Delphi probably saved 2 percent to 3 percent of its payroll costs, likely millions of dollars with a U.S. white-collar payroll around 17,000, said Daniel Boyce, a certified financial planner and partner at the Center for Financial Planning in Southfield.
Ford remains the sole member of the former Big Three that has not trimmed its matching 401(k) program, in which Ford matches 60 percent of the first 10 percent an employee contributes. Ford's former parts operation, Visteon Corp., has the same plan.
However, the besieged Dearborn automaker is operating under an edict from chief financial officer Martin Inglis that "nothing is off the table" for cost-cutting, so trimming the plan can't be ruled out. Ford has already said it will cut 10 percent of its 46,000 U.S. white-collar workforce and eliminate bonuses for its top 5,000 executives.
"We are reviewing these programs, but I don't know of any plans to tinker with them right now," said Anne Marie Gattari, Ford corporate news manager. "These kinds of things are always under review, always being looked at. We have suspended them in the past, like the early 1990s when times got tough."
Most hourly auto workers, typically represented by the UAW, have 401(k) plans they can contribute to, but do not receive a matching portion from the employer. For white-collar autoworkers, however, matching 401(k) plans in recent years became as standard as a pension plan.
These plans were trimmed in the early 1990s, the last time automakers like Ford and GM faced a recession.
Around the mid-1990s, the matching plans came back amid growing auto sales. As profits rose, automakers and their suppliers fought to attract or retain employees in a tight job market with low unemployment. For about five years, the advantage was in the employees' favor.
That has changed this year. Auto sales at the former Big Three are down 9.2 percent this year, including 11 percent in August. Unemployment nationally last month swelled to 4.9 percent, the highest in four years.
The slowing auto market hit the Chrysler Group first. As part of its $3.9 billion restructuring in February, the Auburn Hills automaker slashed 26,000 jobs worldwide.
Quietly, it also capped 401(k) contributions, aiming at higher-paid workers. As of Feb. 26, Chrysler would match 60 percent on the first 8 percent an employee contributed, but would only do so on the first $80,000 the employee made. Previously there was no such cap.
Chrysler hopes to eventually eliminate the cap, but "we are completely reliant on a turnaround and improved market conditions," said spokeswoman Debra Nelson.
GM followed in March by cutting its matching plan from 80 percent to 60 percent on the first 6 percent put in by a worker. That affected about 50,000 U.S. white-collar workers.
Delphi suspended its plan altogether in April. The company called the move temporary, but has made no promises about the level of the match if or when it returns.
"It depends completely on business conditions, which have been down and continue to be down," said Delphi spokesman John Pekarek.
Contact JEFFREY McCRACKEN at 313-222-8763 or mccracken@freepress.com.
Get it through your head, IT'S OVER.
Run for the hills, don't look back.
And accepted by employees in exchange for services rendered -- a contract.
Do employers have the right to unilaterally change the terms of such a contract without notice?
Is it wise to change the benefit plan? I know an employer that recently changed its benefit plan. Those hired after a certain date receive a smaller benefits package (which is still competitive). We have employees working the same jobs, but not getting the same benefits. Somehow, it hasn't blown up or started any civil wars, but you never know.
Unions negotiate contracts with employers. These generally cannot be changed unilaterally by the employer.
No, however matching monies are always discretionary. All the employer needs to do is give notice (as directed under ERISA regulations) and weather the inevitable employee storm of protest.
In this case I expect many are just happy not to be let go. This kind of move usually takes a real leader with guts. As the article points out, it's a fast cost cutter. And yes, it's not good for the stock market either, its good for the company though. In the long run it will save a lot of people from being let go.
The economy!!!!!!!!!!!!
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