Coca-Cola Moves to Cash Balance Plan

Under the cash balance plan design, employees will receive annual age-weighted credits equal to a percentage of pay, starting at 3% and increasing with age. Employees’ cash balance plan accounts also will be credited with interest, but Coca-Cola has not yet decided on the interest-rate formula it will use, Business Insurance reported.

The plan will be offered to most U.S. salaried and hourly employees hired as of January 1, 2010, and employees currently in Coca-Cola’s traditional final average pay plan will earn future benefits in the new plan the same date.

While many employers have made a move away from defined benefit pension plans to offering only defined contribution retirement plans to employees, Coca-Cola executives rejected that idea, according to the news report. “Offering a secure and risk-free benefit to employees is very important to us,” Sue Fleming, director of global benefits at Atlanta-based Coca-Cola, told Business Insurance.

Fleming said the appeal of a cash balance plan for an increasingly mobile workforce is that benefits, which are based on career average pay, accrue faster than they do in traditional plans, in which employees have to work many years before accruing significant benefits.

Watson Wyatt Worldwide worked with Coca-Cola on the cash balance plan design.

The Pension Protection Act freed employers to offer cash balance plans without fear of litigation, after some companies who adopted the plans had been sued for age discrimination (see “IRS Applies PPA Changes to Cash Balance Regs’). Other big employers that adopted cash balance since the enactment of PPA are MeadWestvaco Corp. of Richmond, Virginia; SunTrust Banks Inc. of Atlanta; and Dow Chemical Co. of Midland, Michigan, according to the news report.