Big changes are underway for BMW employee benefits as the company shifts from pensions to employee retirement accounts.
BMW spokeswoman Mariella Kapsaskis said the company will freeze its pension system on June 30 for employees hired before March 1, 2012. After that date, all U.S. employees, including those in the Spartanburg plant, will benefit from the same defined contribution pension. income account “.
The change removes an element of uncertainty for the German automaker, which said in its 2018 annual report that it was exposed to certain risks “both from defined benefit plans and defined contribution plans with guaranteed returns. minimum”. The report also stated that the rates used to calculate pension obligations “are subject to market fluctuations and therefore influence the level of obligations”.
Current retirees won’t see their benefits change, according to Kapsaskis.
The move away from pensions or defined benefit plans, which typically pay benefits throughout a former employee’s life, in favor of defined contribution plans has been a major trend for U.S. businesses in recent decades. , according to Clemson University associate professor of economics, Patrick. Warren. Such plans largely shift the responsibility for managing pension plans from employers to their workers, he said. A 401 (k) is a form of defined contribution plan.
It can be a way for employers to cut costs, Warren said, but it can also be a sign that employers are adjusting to work trends.
“I think the most important thing to keep in mind is that a pension plan and a health plan are all part of a package that companies come up with to try to attract workers,” Warren said. . “When deciding on the details of this package, they need to think about how attractive this plan is to workers per dollar it will cost them to deliver it.”
Kapsaskis said BMW is committed to providing its employees with “flexible, competitive and meaningful benefits” as part of a comprehensive employment program. She said the company reviews its benefits every year to “compare them to others within the BMW Group’s global network, the automotive industry and the nation’s top employers to ensure that we can have a global offering. ‘attractive benefits’.
In an era when employees would work for a single company for decades, pensions made sense as a way to attract and retain talent, Warren said. Benefits would accumulate slowly over time and were unlikely to pay out large benefits if an employee left the company years before their retirement date.
Defined contribution plans, on the other hand, typically involve a mix of dollars from both employees and their employers, which can then be controlled and invested by individual workers. They also usually have provisions that allow employees to keep that money if they leave one company for another.
“If I leave after five or six years, I rarely get much out of the deal,” Warren said. “And workers change jobs and companies much more frequently than in the past. So employees want flexibility, which defined contribution plans can offer.”
Regulatory changes have also forced companies to monitor funds invested for pensions more closely.
“We’ve seen increased actuarial requirements in response to pensions that have gone bankrupt, which has made pensions more expensive compared to defined contribution plans, where employers just give you money,” Warren said.
Warren said the risks are different between the plans.
“The reality is you face a certain level of risk all the time, it’s just a different type of risk,” Warren said. “With a pension, if you die on the day you retire, it is very unlikely that anyone will be able to take advantage of these benefits. With something like a 401 (k), employees can look for higher returns or they can pull out a bit, but I don’t think it’s clear that such plans carry more risk. “