Pension Plans on the Decline: Kodak Terminates Its 97-Year-Old Plan

Eastman Kodak has terminated its 97-year-old pension plan to generate $500 million in cash to pay off debt. The plan's 35,000 employees can choose to settle through an annuity or take a lump sum on their balance. Kodak is still working out what kind of pension it will introduce for new and current employees. The move highlights the decline of traditional pension plans and the importance of retirement savings planning.

Eastman Kodak, a company with a rich history in photography, has taken a significant step to address its financial challenges by terminating its 97-year-old pension plan. The company aims to generate $500 million in cash to pay off debt obligations, highlighting the decline of traditional pension plans and the importance of retirement savings planning.

In its earnings report for the second quarter of 2024, Kodak warned investors that it may not have the money to pay off debts over the next 12 months. The company reported $477 million in term loans that could not be paid if they became due in accordance with their current terms. Kodak’s cash balance fell by $46 million from the end of the prior quarter, standing at $155 million [1].

To address this situation, Kodak plans to use the proceeds from the reversion of its terminated Kodak Retirement Income Plan (KRIP) to pay off its debt obligations. The company estimated that the reversion would yield $500 million, of which $300 million would be available as cash, and another $200 million would be invested in illiquid investments [1].

The pension reversion allows Kodak to terminate the plan and claim its surplus assets. However, this process can come with a high tax penalty, as a 50% excise tax would apply if the company wanted to revert 100% of excess plan assets. To mitigate this, Kodak is considering alternatives such as opening a qualified replacement plan or redirecting surplus assets to another retirement plan, which could reduce the excise tax to 20% [1].

Kodak’s board of directors voted in January to terminate the KRIP and open a cash balance plan effective March 1 for new employees and April 1 for existing employees. The company expects to complete the pension reversion by December 2025, with plan participants electing to settle their benefits through an annuity or a variety of lump sum options [1].

The termination of the U.S. Kodak Retirement Income Plan and the subsequent reversion of excess funds to pay down debt are part of Kodak’s strategy to reduce its long-term debt and the annual cost of servicing that debt. The company is still working out what kind of pension it will introduce for new and current employees [1].

This move underscores the financial pressures many companies face and the need for innovative solutions in retirement planning. As traditional pension plans become less common, companies and employees alike must adapt to new retirement savings strategies.

References:
[1] https://www.plansponsor.com/kodak-terminated-its-retirement-income-pension-in-favor-of-a-cash-balance-plan/