Saturday, September 02, 2006

Dupont Pension Plan Cuts / SEC Proxy Disclosures

Pension Boards over the past week have undoubtedly been discussing the recent Dupont pension announcement. This has been correlated to the tightened funding standards under the Pension Protection Act of 2006, though proposed new accounting treatment for pensions may be equally if not more distasteful to sponsors than the new funding rules. What has been generally overlooked, but has caught the eye of executives, is the dismantling of executive pension and SERP programs. As the WSJ reported:

"DuPont Co. said it would cut its employees' company pension benefits by two-thirds after 2007, making the chemicals giant the first major company to reduce pension benefits since Congress passed new legislation touted as improving pensions' health…DuPont's $23 billion pension plans have a funding shortfall of $3.1 billion, but most of that ($1.8 billion) stems from pensions for executives, which aren't funded in advance, and its foreign employees, where funding isn't required. DuPont declined to say how much of the shortfall stemmed from executive benefits. Mr. Porter said the company will change the executive pensions to align them with changes in the pensions for non-executive U.S. employees..."

Dupont’s alignment of their executive compensation with non –executive compensation may also reflect the fact that on July 26, the Securities and Exchange Commission (SEC) adopted new proxy disclosure requirements for executive compensation, effective for proxies filed in early 2007 (for calendar year reporting companies). The new rules broaden disclosure of corporate compensation and increase legal liability for this information. Two areas of executive compensation with weak disclosure requirements in the past; severance and pension plans, are covered in the new disclosure standards. Corporations like Dupont will now be weighting tightened funding standards, negative pension accounting implications as well as a higher level of investor scrutiny when trying to justify current executive and non-executive defined benefit programs.

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