May 13, 2019 Update: Arconic Demands Elimination of Defined Benefit Pension Plan

Arconic has proposed to freeze benefits under the current hourly pension plans as of December 31, 2020 and replace them with age-based contributions to the 401(k) savings plan. 

The Company complains that its pension costs are volatile, that plan funding has declined and that it eliminated pension coverage for salaried employees in April 2018.

Although the Hourly Pension Plan was 98% funded as of January 1, 2015, prior to the separation, the funding level has dropped to only about 75%. Arconic’s pension funding has declined due to investment losses, changes in investment policy, lower actuarial assumptions and its decision to fund at the minimum rate required by law.

Active Pension Costs are Affordable

The pension underfunding is related to promises to Arconic’s 17,500 retirees and former hourly employees, not the cost of the benefits being earned by its current workforce. According to public filings, the cost of benefits being earned by active employees under the Arconic Hourly Pension Plan was about $2.50 per hour in 2018 and has averaged $2.52 per hour over the last five years. The accounting expense for the Plan is even less. Freezing the Arconic defined benefit plan will not reduce the plan’s underfunding -- it will only hurt the active workforce generating production and profits for the Company.

Proposed Replacement Plan Puts Employees at Risk

The proposed pension freeze and replacement contributions to the 401(k) plan will undermine retirement security and will:

  • shift the risk of poor investment performance to employees;
  • make it impossible to negotiate benefit improvements for older or long service employees near retirement;
  • eliminate early benefits such as 30-year retirement, 62/10 retirement;
  • eliminate the current disability benefit;
  • eliminate benefits earned during periods of absence (such as layoffs, S&A, workers’ compensation and military leave;
  • eliminate pre-retirement surviving spouse coverage;
  • expose employees to risk of outliving their income unless they use funds to pay fee to purchase a monthly annuity. Current Plan does this for free.
  • eliminate pre-retirement surviving spouse protection and make employee pay fees to purchase an annuity;
  • lower investment earnings by raising investment fees and administrative expenses; and
  • lower employee commitment and productivity (higher employee turnover).

Arconic Has Cash for Executives, But Not Employees and Retirees

Arconic has had enough cash for its executives, lenders and stockholders, but not to fund the promises to retirees or provide retirement security to active employees. During the last two years, the Company:Ÿ

  • paid former CEO Chip Blankenship $4.6 million in severance benefits Ÿ
  • granted new CEO John Plant shares worth $18 million with an additional promise of a cash bonus of up to $20 million if Arconic’s stock prices rises to $30 per share, Ÿ
  • spent $900 million in cash to repurchase its stock to increase its price
  • reduced its long term debt by over $500 million due to redemptions and payments
  • paid over $250 million in dividends to stockholders.

Arconic’s claims that it needs to eliminate our pension benefits to save the Company aren’t credible.

We have a voice in this Company’s future and how we should be treated. After a career of work, we deserve a secure retirement. We aren’t agreeing to cut our pension to pay short-term investors.