Hewlett-Packard phasing out US pension plan

HP is phasing out its defined US benefit pension plan, completing the process it started just over a year ago when it closed the plan to new and younger employees.

After Dec. 31, plan participants no longer will earn benefits in the DB plan. Instead, they will be eligible for an enhanced 401(k) plan match. HP's action is the second step the Palo Alto, Calif.-based technology giant has made to wind down the plan. In January 2006, HP closed its pension plan to new and younger employees and offered those individuals a beefed-up 401(k) plan in which the company matches 100% of employees' 401(k) salary deferrals, up to 6% of pay.

Employees whose combined age and service were at least 62 remained in the DB plan and a 401(k) plan in which HP matches 100% of employees' salary deferrals up to the first 3% of pay and 50% of employees' pretax contributions on the next 2% of pay. Starting Jan. 1, 2008, those individuals will move to the enhanced 401(k) plan. HP said the changes are "consistent with actions being taken by many of HP's industry peers and other large corporations." Other companies that have deployed a two-step approach to phase out their defined benefit plans include IBM Corp. of Armonk, N.Y.; NCR Corp. of Dayton, Ohio; and Sears Holding Corp. of Hoffman Estates, Ill.

Mark Hurd said to employees :
" As a result of this decision, we will have a one-time pension curtailment gain of approximately $500 million. We will use the savings from the pension freeze to offer
impacted U.S. employees the option to participate in an Enhanced Early Retirement (EER) program. This is a voluntary program and will be offered to the impacted
employees whose combined age and years of service equals 65 or more.

After the election period ends, we will assess projected program costs based on the number of employees who apply. If the projected costs exceed the accounting gain from freezing the U.S. pension plans, employees will be accepted starting with those that have the highest number of points.

This means that, it's possible, that not everyone who applies for EER may be accepted, which is different than programs we have offered in the past. The changes to the U.S. retirement program are consistent with actions being taken by many of our industry peers and
other large corporations, and will more closely align HP programs with industry-competitive practices. The nature of the treatment of this program has been increasingly
challenging for us to deal with and inhibits our ability to grow. We are therefore making a choice not to continue to differentiate Hewlett-Packard in this area.

About a third of the employees within the United States will be affected and I want to acknowledge the personal impact that this may have. Employees included in this group
will receive further details this week. Additional materials are available on the portal including how to submit a question.

Finally, the benefits received by current U.S. retirees or other active employees will not be affected one bit by today's announcement."