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November 07, 2006
Hershey Redesigns Pension Plan

The nation's largest candy manufacturer, Hershey, recently announced that it is redesigning its U.S. pension plans, effective January 1, 2007. The changes will affect approximately 6,400 nonunion employees nationwide. Under the redesign, benefits for current participants in the company's traditional defined benefit plan will continue to accrue, but at a reduced rate. For those participants, the company will offer a larger match on their 401(k) plan contributions. Those employees' current pension balances as of year-end 2006 will be maintained and will continue to grow with interest, the company said, adding that the change would not affect current retirees and terminated employees with deferred pension benefits.

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The traditional defined benefit plan will be closed, however, to new employees hired on or after January 1, 2007. Instead, those new hires will receive the higher 401(k) match as well as a 3 percent employer contribution to a 401(k) account, even if they don't contribute themselves.

Hershey said that the redesign will enable the company to remain competitive in the marketplace and help it better manage the increasing costs of benefits over the long term. Management also hoped that the 401(k) enhancements would improve its ability to offer competitive, attractive, and sustainable retirement benefits to current and future employees.

With this move, Hershey joins the list of prominent employers that have frozen or closed their traditional defined benefit plans in recent years, which includes IBM, Hewlett-Packard, Sears, Alcoa, Armstrong, Verizon, Motorola, and others. The main motivation: avoidance of unpredictable costs associated with defined benefit plans. Although 401(k) retirement plans essentially give employees the job of making their own retirement investments, some experts say that the 401(k) is more attractive than traditional pension plans because it's portable and more easily understood.

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