TECUMSEH - Struggling Tecumseh Products Co. has notified an estimated 3,600 current and former salaried employees that it is terminating their pension plan, but said benefits will continue.
If the U.S. Department of Labor approves the proposal, the Lenawee County manufacturer will end the plan April 30 and take out policies with a private insurance company to keep benefit checks flowing to retirees and to ensure that current employees receive checks when they retire.
"You will not lose the benefits you have earned," Michael Forman, vice president for human resources, said in a letter Feb. 28 to retirees and salaried employees. Those affected include 1,200 retirees, many in southeast Michigan. The firm, a manufacturer of refrigeration compressors and lawn-mower engines, employs about 300 at company headquarters and a distribution operation in Tecumseh. It is unclear how many in the local workforce are salaried employees.
Pension plans of the firm's 3,600 hourly workers in the United States will not be affected, a spokesman said. Seventy percent of the firm's workforce is in South America and overseas, but they are not affected by the pension changes.
Unlike the situation at many companies that terminate traditional pensions, Tecumseh's plans are overfunded. The $594 million in investments they contained as of 2005 - the most recent report available - was $183 million over what was needed to cover current and future obligations, according to federal regulatory filings by the firm.
Tecumseh, a Fortune 1,000 company with nearly $2 billion in annual sales, will use a portion of the fund to reduce debt. The company had nearly $300 million in long-term debt as of Sept. 30, federal filings show.
Tecumseh, founded in 1934 by industrialist Ray Herrick, was highly profitable for many years. But battering by globalization and rising raw material costs turned the black ink into a sizable loss last year.
Directors brought in Alix Partners, a turnaround firm in suburban Detroit, two years ago to try to right the ship. Problems at the firm led to a split between the board and Todd Herrick, the founder's grandson and chief executive officer until January. Board members ousted him as chairman last week after Mr. Herrick threatened to launch a proxy fight to eject directors who oppose him. He retains his board seat, however.
and chief executive officer until January. Board members ousted him as chairman last week after Mr. Herrick threatened to launch a proxy fight to eject directors who oppose him. He retains his board seat, however.
When the pension plan ends, pension checks of current salaried employees will be frozen at amounts already accrued, the company indicated in the letter last week.
As of May 1, the employees will be covered by a new plan, but details were not disclosed.
The transfer of the pension obligation through the purchase of an insurance annuity is not uncommon, said Benjamin Goff, a Toledo benefits consultant.
"Starting about 20 years ago, the trend has been to move away from defined-benefits plans," said Mr. Goff, president of Great Lakes Risk Management Inc. "This is by far the most-practiced option."
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