Pension cost-cutting may spread to tech/comm industry
US - The desire to close down existing defined benefit schemes may spread to the telecom and technology industries, even when there is no immediate financial pressure to do so, warned Standard and Poor's (S&P).
According to S&P’s research: “Credit FAQ: Pension Cutbacks At North American Technology And Telecom Companies”, recent announcements to close defined benefit schemes by companies like IBM and Verizon Communications was a sign that more companies were willing to end their DB plans even when pension liabilities were “not severe and do not appreciably impact credit quality”.
The research stated “pension cutbacks that have become a part of the US business landscape are starting to reach the telecom and technology sectors both of which are, on the whole, fiscally sound.”
S&P believed the desire to better control pension costs going forward and improve profitability were the primary drivers behind technology companies, noticeably true of “old-line” firms, closing their DB schemes.
“Younger technology companies do not have large defined benefit plans and liabilities. At IBM, for example, the pension liabilities are reflective of the era in which it was founded and of a historically paternalistic corporate culture,” said S&P credit analyst Martha Toll-Read.
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