Eastman Kodak, the legendary image and technology company, has resolved that it wants to end US pension obligations, a move the company believes will boost its financial muscle by more than half a billion dollars. While such a decision is a paradigm shift for the company, it has left many retired and active employees with worries about their entitlements.
A decision to terminate the pension plan, which has, over the years, remained an integral part of the legacy of Kodak, forms part of a far greater strategy to slim down its operations and focus much more on long-term financial stability. Kodak presses forward with its efforts to find an adaptation in a fiercely competitive and rapidly changing industrial landscape.
According to Kodak, such termination will entail pension risk transfer, whereby its US pension obligations will be transferred to a third-party insurer. The act of pension risk transfer means that retirees and beneficiaries will not lose any benefit payments, but Kodak will no longer administer the obligations.
The deal is expected to bring about considerable savings to the company, liberating more than $500 million for other strategic initiatives. Kodak officials said the decision fits with their aim of building a leaner, more agile organization.
Mixed reactions have come from retirees and current employees covered under the pension plan as a result of the announcement. Kodak has reassured stakeholders that benefits already earned will be honored under the new arrangement. Retirees will experience no disruption in their payments as the third-party insurer will assume responsibility for future distributions.
But, of course, there are valid concerns about what changes to the quality and security of their benefits this would entail. Concerned groups for retirees have urged an open approach to the process and safeguards to protect the interests of retirees.
Termination of its pension obligation is one of the steps that Kodak has taken towards building a healthy financial life. Through the years, the company faced great challenges, among which were bankruptcy in 2012 and failure to survive in the digital era. With the offloading of pension responsibility, Kodak finds greater flexibility in investing in key business areas such as digital printing, chemicals, and advanced materials.
Kodak’s action marks a growing trend by big companies to shift the liabilities of their pension plans to the insurance companies or to transfer over to defined contribution type 401(k) style plans. Companies are no longer able to sustain long-term pension plans with ballooning costs and longer expected retirements.
This would be Kodak’s second termination of a US pension plan in two decades, which has been under pressure. In doing so, Kodak has weighed the immediate financial gains of ending its obligation to fund pensions against long-term social obligations toward its workforce and retirees. With this major turning point in the future of Kodak and those who own a stake in the company, Kodak needs to protect its retirees, even if it will continue to establish a sound financial future for itself.
