Goodyear will completely freeze its defined benefit pension plan covering union employees on April 30.
The Akron-based tire manufacturer disclosed the plan Feb. 13, noting the freeze was agreed to as part of a four-year contract with the United Steelworkers that was ratified last August. Under that agreement, Goodyear could fully fund the plan any time during the four-year contract, with a freeze going into effect 90 days later.
Goodyear disclosed in its 10K report for 2013—released Feb. 13—that earlier this year it had fully funded the defined benefit plan with a $1.15 billion contribution, allowing the company to freeze it.
Goodyear will set up a new defined contribution plan for affected employees.
“This is a major milestone in our history and will provide greater transparency to our underlying tire business while improving earnings and cash flow. Moving past these legacy obligations is a new beginning for our company,” Richard Kramer, Goodyear chairman and CEO, said in a statement.
Goodyear made the announcement as part of the release of its 2013 financial results. For the year, Goodyear reported a 27-percent gain in segment operating income to $1.58 billion on 7-percent lower sales of $19.5 billion. Net income more than tripled to $600 million, or 3 percent of sales.
The April 30 pension plan freeze is the latest in a series of steps Goodyear has taken in recent years to reduce employee benefit obligations.
According to the terms of a 2009 contract, nearly all USW-represented employees hired since October 2006 were not offered coverage through the defined benefit plan.
Instead, effective Jan. 1, 2010, Goodyear set up a new 401(k) plan. Prior to that, Goodyear had frozen its defined benefit plan for salaried employees on Dec. 31, 2008, and beefed up their 401(k) plan.
In 2007, Goodyear took another step to rein in benefit obligations through an arrangement—also agreed to by the USW—in which the company contributed about $1 billion to a special tax-exempt health care trust that is providing benefits to USW-represented retirees.
In turn, Goodyear eliminated future obligations to provide retiree health care benefits, removing a projected $1.3 billion from its balance sheet and improving cash flow by $145 million a year.