Analog Devices has become the latest company to switchfrom a defined benefit (DB) or final salary based pension scheme to a defined contribution (DC) plan.
On Wednesday, the semiconductor manufacturer which employs about 1,100 people in Limerick, said it will convert the employee benefits provided under its DB retirement plan to a DC plan. It will make an upfront investment of about €190m as it does so.
Leo McHugh, VP instrumentation business unit at Analog said that the move is aimed “at safeguarding the retirement benefits of our current and former employees”.
“This new retirement arrangement is designed to deliver a similar retirement benefit while providing greater transparency and flexibility,” he said.
Analog is just one of a number of companies to make the switch in recent years, given the difficulties in funding pensions based on a proportion of final salary, sometimes as much as two thirds. FBD Insurance said last week it is closing its DB scheme.
While there can be a concern that DC schemes will not adequately provide for people in their retirement, Analog said that, based on “prudent actuarial assumptions”, it expects employees to enjoy a similar projected retirement benefit outcome under the new scheme.
Denis Doyle, general manager and VP of manufacturing at Analog added: "Our DB scheme is currently secure and at the last valuation was 125 per cent of the Pension Regulator's funding standard. We've designed this transaction so that all benefits accrued for past service and a substantial portion of prospective future service will be paid to members of the DB Plan now. Reducing the volatility and uncertainty is important to everyone and we expect this will become a model of best practice."
Analog said that a portion of the DB plan assets will first be used to secure the current pension benefits of the DB plan’s retired members through the purchase of individual annuities. The company’s €190m investment , together with the remaining DB plan assets, will then be apportioned to the active and deferred members of the DB plan.
Analog said it expects the DC plan to be up and running by October 31st 2015.
