There are a lot of comments on this board about the company match not coming back. Here is my prediction. The 401k match is coming back by end of 2022, and it will be 1 or 2 % higher than the old 7%!
Good news, right? But wait, keep reading.
ExxonMobil is one of the few companies remaining which have both a “defined contribution” plan (7% match until last October) and a “defined benefit” plan (pension). Under federal law, the two plans are treated very differently. The company can turn the company match on and off quickly (like a faucet). That is why they were able to react so quickly when they wanted to reduce employee expenses to protect the dividend, so they stopped the company match. But federal laws governing the pension plan are very complex (just try reading the Pension Protection Act of 2006). They are designed to prevent companies from cheating employees out of their pension. It takes a great deal of work from legal, tax, accounting, and actuarial experts to shut down or freeze a pension plan in a way which does not violate federal law. It is highly likely the company has experts looking at this right now. (In fact, I would bet that darren had them looking at this before the pandemic hit.)
The vast majority of U.S. companies in all types of industries and businesses have moved away from the traditional pension plan, and to a match type benefit instead. A company match to a 401k is much less expensive than a defined benefit like the pension plan. A company provides a certain % to an employee in each paycheck. The payment is simple to calculate and administer. No need to worry about setting aside billions of dollars for future obligations. No need to make up huge deficits if the plan becomes underfunded or the pension fund assets perform poorly. No accounting and legal headaches. There is no future risk for the company; the risk is transferred completely to the employee. (The only sector where the traditional pension plan is still very common is with public sector / government. And it is a main driver for why so many government entities in the public sector struggle to balance their budgets.)
What most people do not know is the cost of the pension for ExxonMobil is much higher than the cost of the 401k match. The pension costs the company about 15 to 20% per year of a typical employee salary (can actually be higher in years when the returns on the pension fund are poor, because the company has to set aside more funds to make up the shortfall). This is completely separate from the 7% match. So in a typical year the true cost of providing “retirement” benefits is approximately 22% to 27% for a U.S. based employee.
The value of the ExxonMobil pension plan is based on a formula (years of service x 1.6% x average final pay) which increases dramatically in the later years as one reaches retirement age, and the years between age 55 and 60 also increase the pension value as the 5% discount per year disappears. So “vested” retirement benefits at age 55 are much smaller than age 60, and employees leaving before becoming retirement eligible (age 55 years and 15 years of service) see a huge hit to their pension benefit. The same will be true when the company eliminates (or freezes) the current pension plan. While employees will not lose the “vested” pension benefit, the lost pension value will be huge for many employees, especially for those in mid-career.
So that’s where they pull the switch. They will announce the company match will return, with a higher rate! They will make a big deal out of it and pretend they have done something wonderful for the employees. But they will also freeze the pension plan at the same time. They will try to sugar coat the moves, but in reality the result will be severely downgraded retirement benefits.
If I were an ExxonMobil employee in my 20’s or 30’s, this could actually be good news, because I would have no confidence this company will keep their promise to pay me a pension in 20 or 30 years from now anyway. I rather have the company match in my account, which I can take with me if I decide to leave (or if the company plays more shameful games like PIP/PIL to force me out before I can even make it long enough to receive a pension). But if I were an employee in my 40’s or 50’s, I would be very unhappy because the value of my benefits would drop dramatically. The extra 1 or 2% they add to the match will never come close to the amount I could have earned from the pension.
So the company can actually save huge amounts of money by increasing the company match and eliminating the pension plan. But that is not all it does for them. Keep in mind that one of the main drivers of a pension plan is to tie or bind an employee to the company long term. This used to be the ExxonMobil way. But it is clear that darren wants the company to move towards a model where each employee is essentially on a one year contract (i.e. until the next assessment cycle). After all, I’m sure he thinks every employee is expendable (except him of course).
So that’s what I believe is on the way. Please do not misunderstand me. I am not naïve about the reality of the marketplace and financial pressures. ExxonMobil has to adjust benefits over the long run to ensure they are affordable. But the pension plan is a bond between the company and the employee which ties our futures together. A loyal and dedicated workforce is a valuable asset for any company, which will deliver tangible results to the bottom line. They need to remember that “you get what you pay for”. ExxonMobil cannot attract and retain a high quality workforce at rock bottom prices. But unfortunately it looks like darren is about to make another huge mistake.
Finally, it would be an enormous improvement if darren and the rest of his senior management would be honest with us. Stop saying one thing but doing another. Speak to us like intelligent adults, with candor and transparency. And if they must reduce some financial benefits like the pension plan, then how about replacing them with other benefits, like a 9/80 work schedule, more opportunities for working from home, elimination of the brutal ranking system which grinds down good people, or showing appreciation for your employees with real actions instead of empty words.