By Rebecca Davis
You may have read that last week newspaper publisher Gannett announced that it will freeze its pension plan for all employees as of August 1, 2008. The company announced the freeze and details of its plan to “enhance” the company 401(k) in a memo sent to employees.
Gannett is just one of many employers that we have added to our growing list of companies that have changed their defined benefit plans. Freezing traditional pensions is a distressing trend in which companies break the promises they’ve made to workers, especially older workers, in favor of boosting their bottom line. In the memo Gannett acknowledges that getting rid of guaranteed pensions will result in a “diminished benefit” for employees, even with an increased company match to their 401(k). A blog written by a former Gannett employee has provided a forum for employees to respond to the freeze.
Gannett’s freeze announcement alarms me for another reason. Gannett plans to use company stock to match employee 401(k) contributions. This means that employees will not only be investing their careers in the company, but much of their retirement money as well. All you have to do is think of Enron to realize why this is a bad idea.
Fortunately, a recent change in the law allows workers to move their 401(k) assets out of company stock and into another investment after three years. But does this change in the law go far enough? Is a retirement account truly “diversified” when so much of it is invested in a single company?