Echoing what it has already done in other countries, BMW Group revealed late last week that it plans to freeze pensions for its U.S. workers who have them and shift them over to defined contribution plans, according to an April 1 report in The Greenville News.
The move, set to take effect July 1, reduces the company’s overall strategic risk by removing the prospect of guaranteed retirement payments for the rest of their lives, according to the German luxury automaker’s latest annual report.
BMW’s Spartanburg County plant in South Carolina employs 11,000 people and last year produced about 357,000 various X models. The BMW Group calls the United States its “second home,” as evidenced by its $600 million in recent plant investments at Spartanburg its decision to produce the new X7 SUV at the plant.
The decision to move employees from defined benefit pension plan to a 401k plan comes in the wake of recent disclosures that 2019 will be a tough year financially for BMW, with profits likely falling as low as 6% compared to 10.1% in 2018 and a record 10.9% in 2017.
A statement from the recently released annual report, as stated in the Greenville News piece, “If risks relating to pension obligations materialized, they could have a high earnings impact over the two-year assessment period.”
BMW’s decision to freeze its U.S. pension, the Greenville News says, is part of a massive shift in the private sector over the past two decades from defined benefit pensions to worker-administered retirement plans such as the 401k.
BMW workers who have already retired will not see their benefits change, the article says. The company had already ceased offering pensions to new hires in 2012. This latest development means all current employees–veteran employees with traditional pensions and newer employees without them–will pay into a 401k account once the changes take effect.