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Goodyear to freeze U.S. salaried worker pensions
2007-02-28
Goodyear Tire & Rubber Co.(NYSE:GT) said on Wednesday it would freeze pensions and require salaried retirees in the United States to contribute more for health coverage to cut costs. Goodyear, the largest U.S. tire maker, said it would phase in those and other changes over two years, freezing the pension plan at the end of 2008 and replacing it with enhanced 401(k) savings accounts with company contributions. The company, whose shares were up slightly, plans to record a first-quarter charge of $65 million for those actions, which it expects to reduce the pension obligation by about $100 million and other post-retirement benefits by $525 million. The changes follow Goodyear's agreement with the United Steelworkers union late last year to finance a trust fund to cover union retiree health care, eliminating the need for further company contributions. The company, which is in the middle of a three-year restructuring plan that includes cutting costs by more than $1 billion, said earlier in February it expected to raise that cost-cutting target later in 2007 after making substantial progress. Goodyear expects after-tax savings of $80 million to $90 million in 2007, $100 million to $110 million in 2008, and $80 million to $90 million in 2009 and beyond from the various changes. About 14,000 active salaried workers will be affected by the pension and health care changes and 17,000 retirees by the changes to the health programs, Goodyear said. The Akron, Ohio-based company has salaried employees in offices, factories and retail stores. J.P. Morgan analyst Himanshu Patel said the actions would reduce Goodyear's nonpension post-retirement obligations by about $775 million, with a modest reduction in pension liability. "We had expected an announcement on this front for the past few months, but the magnitude of the savings appears about twice what we originally thought," Patel said in a note. Goodyear's announcement came one day after FedEx Corp. (NYSE:FDX) said it would cap its traditional pension plan at the end of May 2008 in favor of offering employees what it calls a portable pension account. AT Goodyear, most health care benefit plan changes take effect in 2008. Besides increasing the retirees' contribution to health care coverage, the company plans to redesign the plans to minimize the impact on premiums, close its Medicare supplement plan to new entrants and discontinue life insurance it has paid for salaried retirees. Goodyear shares were up 10 cents at $24.51 in morning New York Stock Exchange trade after rising as high as $25 earlier in the session.
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