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Bridging the Gap

As defined benefit plans fall by the wayside--frozen or converted to a less desirable cash balance account--employers are coming to the realization that their employees may be left with too little money to stretch across the expanding retirement horizon. The solution is clear: The 401(k) has to become more than...

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Three years ago, $4 billion Hallmark Co. was struggling with a decision that it saw as financially necessary, but morally difficult. The 97-year-old privately owned greeting card manufacturer, which is still run by the grandsons of its founder Joyce C. Hall, was being forced to freeze its 62-year-old traditional defined benefit (DB) plan and replace it with a cash balance plan. Payments would be made into that fund until January 2010, and then those too would end. Like other companies propelled down this road by the increasing volatility of pension assets and liabilities–IBM Corp. becoming the poster company of otherwise good employers pulling the plug on traditional DB–Hallmark started out by sweetening its 401(k) plan match in January 2006–the date of the freeze and switch to the cash balance plan. It promised to sweeten it again–this time to a 60% match on 5%–in 2010 when it was scheduled to suspend pay credits. Hallmark also supplements the 401(k) with profit sharing between 5% and 10% annually on employee salaries.

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