Under the cash-balance plan design, employees will receive annual age-weighted credits equal to a percentage of pay. Those credits will start at 3 percent of pay and increase with age. Employees’ cash-balance plan accounts also will be credited with interest, though Coca-Cola hasn’t yet decided on the interest-rate formula it will use.
The plan will be offered to most U.S. salaried and hourly employees hired as of January 1, 2010. Current employees now in Coca-Cola’s traditional $1.5 billion final average pay plan will earn future benefits in the new plan starting January 1, 2010.
Coca-Cola’s move to a cash-balance plan comes at a time when many major employers are phasing out their defined-benefit plans and offering only defined-contribution plans. But Coca-Cola executives rejected such an approach.
“Offering a secure and risk-free benefit to employees is very important to us,” said Sue Fleming, director of global benefits at Atlanta-based Coca-Cola.
The appeal of a cash-balance plan for an increasingly mobile workforce is that benefits, which are based on career average pay, accrue faster than they do in traditional plans, in which employees have to work many years before accruing significant benefits, Fleming said.
Coca-Cola, which last year reported $31.9 billion in operating revenue—up from $28.9 billion in 2007—is the third major employer to adopt a cash-balance plan since 2006, when Congress passed the Pension Protection Act.
That broad pension funding reform law included provisions that let employers set up new cash-balance plans without fear of facing litigation. Several dozen employers who had established cash-balance plans years ago were later sued for age discrimination.
“The PPA took off the handcuffs of employers that wanted to use the plans,” Fleming said.
The other big employers that adopted cash balance since the enactment of PPA are: MeadWestvaco Corp., a Richmond, Virginia, paper packaging and office products company; SunTrust Banks Inc. of Atlanta; and Dow Chemical Co. of Midland, Michigan.
In addition, package delivery giant FedEx Corp. of Memphis, Tennessee, expanded an existing cash-balance plan to cover more employees.
The Atlanta office of benefits consultant Watson Wyatt Worldwide worked with Coca-Cola in designing the cash-balance plan.
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