Fidelity to end employee pension plan

Fidelity Investments is eliminating its traditional pension plan for roughly 32,000 of its employees, an important symbolic move by a company that has been at the forefront of efforts to push more responsibility for retirement onto workers and away from companies.

The Boston mutual fund giant will instead offer workers increased benefits in the company's 401(k) plan plus a new health-savings credit to help pay medical expenses when workers retire, and will allow them to roll their existing pension benefits into a Fidelity profit-sharing plan .

Fidelity spokeswoman Anne Crowley said the company is taking the steps after internal surveys showed 71 percent of its employees didn't know how they would pay for healthcare in retirement. She said the company's pension plan is currently fully funded to meet its current obligations and said Fidelity thinks the new benefits will "be an improvement, while many companies are cutting back" on retirement benefits.

Many troubled companies have eliminated pensions for new workers and sharply reduced other retirement benefits . But a more recent trend has emerged in which financially healthy companies have frozen pension benefits for current workers, eliminated pension plans for new ones, or both. Around one-third of Fortune 100 companies offer traditional pensions to new employees, down from one-half in 2002 and 89 percent in 1985, according to Watson Wyatt Worldwide Inc., an Arlington, Va., consulting firm.

Goodyear Tire & Rubber Co. of Ohio, for instance, said this year it will freeze its pension plan for certain workers and require them to pay more for medical benefits when they retire . Also, last month California computer giant Hewlett-Packard Co. said it would phase out pensions for new hires and replace them with a 401(k).

In a traditional pension plans, known as "defined-benefit plans," companies promise to pay workers for as long as they live. Encouraged by legislation signed by President Bush last year -- after a lobbying campaign by major investment firms, including Fidelity -- companies are embracing "defined-contribution plans" such as 401(k)s. In those plans, companies contribute to workers' retirement savings each pay period, but it is employees' responsibility to decide how much to save, and how to invest the assets.

Fidelity is benefiting heavily from this change through its units that manage 401(k) plans for other companies: Its Fidelity Employer Services Co. subsidiary counted 15,467 defined-contribution plans as customers at the end of last year, up from 14,020 in 2005 .

Now, Fidelity is restructuring its own retirement benefits along the same lines.

In its most recent filing with the US Department of Labor, Fidelity said it contributed $126 million to its pension plan in 2005, paying out $3.5 million in benefits. The company did not say whether the changes would result in any savings.

The filing states the pension plan has 36,800 participants, including current employees, former workers due future benefits, and retirees. Fidelity currently has more than 40,000 employees worldwide, but not all workers are eligible for the pension plan.

Crowley said that by early next year employees will be able to roll over the pension benefits they have accrued into an existing profit-sharing plan.

Alternatively, they can decide to receive their pension benefit as an annuity when they retire. There will be no additional payments into the pension plan as of June 1.

The change won't have a major impact on current retirees , though Crowley said these people are a relatively small number for a company of Fidelity's size because of its recent growth, and the average employee is around 35 .

Crowley declined to give many specific financial details of how the ending of the pension plan would affect the average employee, though she said the saving money wasn't a goal for the company in making the change. She also noted two other factors that will offset the change.

First, starting next year employees will receive a new healthcare-reimbursement credit of $3,000 annually to a new account meant to help them pay for healthcare expenses in retirement. A key to this is that distributions from the plan will not be taxed .

Fidelity also plans to increase its matching contribution to current 401(k) plans to 7 percent from 5 percent. The current profit-sharing plan will be left unchanged, she said.

She cautioned the change wasn't meant as a model for other companies and said the pension plan was already less important than other components of the company's savings vehicles.

Dallas Salisbury, a president of the Employee Benefit Research Institute, a Washington nonprofit group, said Fidelity is rare among large financial services companies for still having such a large pension plan. "Relative to the rest of their industry, they've moved relatively slowly on this," he said.

Ross Kerber can be reached at kerber@globe.com. Andrew Caffrey of the Globe staff contributed to this report.