Former EDS employees at DXC Technologies that look set to lose the final salary pension plan will need to funnel 40 per cent of monthly earnings into the replacement scheme to maintain their current retirement pot.
This was one of the areas covered by an FAQ document DXC sent to the more than 1,200 employees in the UK and Ireland that will likely be forced to exit the EDS Retirement Plan and 1994 Scheme and join the Defined Contribution (DC) pension on 1 December, once the current consultation process closes.
DXC has provided a modelling tool to help staff understand how much worse off they are likely to be, and one worker noted the implication.
“Is the modelling tool correct? It seems to suggest that I would have to contribute 40 per cent of my salary into the new scheme in order to enjoy the benefit I have now,” the document stated.
The modeller was based on DXC’s “best assumptions for what might happen in the future”, the company responded. “It is only an estimate, but reflects the contributions that could be required to relocate current benefits.”
Required contributions into the new structure to keep the pension pot similarly filled could be “significant for some members”, DXC admitted. “This underscores the high cost to the company of continuing to provide the current level of benefits,” the business added in the FAQ.
DXC is looking to slash operating expenses by $1bn in this fiscal year that ends March, and is using a mixture of redundancies, offshoring, real estate closures including office space and data centres, automation, squeezing suppliers and cutting back on staff expenses to help it do so.
Staff that refuse to sign the new Ts&Cs and enrol in the DC pension will not be given future pay rises or bonuses, a tactic that one employee in the FAQ document described as “very aggressive”.
Withholding payments from employees was “not the company’s preferred outcome”, said DXC. The firm added that it needed to “control costs and risk and improve competitiveness”… for the benefit of investors.
“This [pension change] is an important part of our proposals because it will put members on a consistent and level playing field with other DXC employees who have ceased accrual in their own final salary plans,” DXC said.
HPE paid $1.5bn into the EDS Retirement Plan and 1994 Scheme prior to spinning off its outsourcing business into CSC, a move that created DXC in April. HPE did this in part because it could not transfer the division with a deep pension deficit and because it needed to pay for continued final salary pension contributions.
Due to this investment, DXC is not required to pay contributions into the EDS Retirement Plan or 1994 Scheme until 2020, though this will be reviewed in December this year.
“Irrespective of the contributions paid by the company, there is a cost and risk associated with further benefits building up. The cost is reflected in the company accounts and directly hits the company’s bottom line,” said DXC.
The consultation process started on 1 September and run until the end of next month. Around 1,200 folk are members of the EDS Retirement Plan and 60 are part of the 1994 Scheme. ®
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