State Street to freeze pension plan, boost 401(k) offerings
Firm joins shift in retirement choices
State Street Corp. said yesterday it will freeze its pension plan for its 15,000 workers and offer them better 401(k) contributions instead, joining the ranks of companies nationwide taking steps to shift retirement decisions to individuals.
Nearly all 13,000 Massachusetts employees of State Street, the big Boston financial services company, will be affected by the change, said spokeswoman Carolyn Cichon, making the shift one of the largest by any local company to date. In March mutual fund giant Fidelity Investments took a similar step and eliminated its traditional pension plan covering 32,000 people, and earlier this month Milford instruments maker Waters Corp. said it will phase out a plan covering 1,100 people.
Traditional pension plans require companies to pay fixed amounts to workers for years after they retire, and to manage big investment pools to fund these programs. So-called "defined-contribution" plans such as 401(k)s appeal to companies as a way to reduce uncertainty about their future payouts and obligations, which depending on the performance of stock markets can hinder company profits.
In 401(k)s, workers make their own investment decisions and their own judgments about how much risk they are willing to take with their holdings. For State Street workers, "This will empower employees to plan for retirement, giving them greater flexibility," Cichon said.
State Street previously had said it was studying the change. It won't necessarily save the company money, Cichon said, depending on future results. Specifically, as of January, the company will start matching 100 percent of the first 6 percent of annual contributions employees make to their 401(k), up from 50 percent currently. Also, employees who don't currently contribute will be automatically enrolled to save 3 percent of their pay, increasing at 1 percent a year to 6 percent of total pay, unless they opt out of the plan. Many companies have put similar features in place following changes to enrollment laws passed by Congress last year.
State Street also will add annual supplemental contributions to employee plans based on the company's overall financial performance. Current retirees will continue to receive payments, Cichon said.
Ross Kerber can be reached at kerber@globe.com. 