3M freezing pensions for nonunion employees in 2028

3M is freezing pension plans for nonunion U.S. employees at the end of 2028, the latest cost-cutting move for the Maplewood-based company.

The change, announced Monday, applies to 3M employees and those at the health care company it is spinning off this year.

3M started moving toward 401(k) retirement plans in 2009 when it cut off access to the U.S. pension plan for new hires and rehires. The company said it has fewer than 9,000 active participants in the pension plan.

By next year, 3M is expected to have about 84,000 employees worldwide, a reduction of about 8,500, compared to 2022 levels. The cuts are part of a broader reorganization meant to shore up corporate finances amid large legal settlements and challenges.

"This is an important decision for 3M as it helps to set up both companies for future success," CEO Mike Roman said in a statement. "To help those impacted, we are providing five years of advance notice to ensure our employees can plan alternative strategies to meet their post-retirement income needs."

Pension-eligible 3M employees will accrue benefits until Dec. 31, 2028. Former employees with vested benefits, retirees and those receiving pension annuity payments are not impacted, 3M said.

While still common in government jobs, just 15% of private-sector workers have access to a pension or defined-benefit plan, according to the Congressional Research Service. Pension participation in the private sector peaked at 30 million in 1980 and now numbers 12 million.

"We know in the public sector, where pensions are normal, we see a lot of long careers," said Dan Doonan, president of the National Institute on Retirement Security. "Who is going to keep an eye on retention and make sure this doesn't impact how efficiently they operate over time?"

Doonan said that it's midcareer 3Mers who are left in the lurch because they may have opted out of years of 401(k) contributions that would have built up over time.

"It was nice of them to give a five-year notice to continue accruing the pension," he said.

3M's move away from pensions follows peers like General Electric, which made a similar announcement in 2019. It also closes the book on a benefit that had been a big draw for workforce recruitment and retention.

"If you're taking away a benefit, you need to replace it with something," said Penn State Dickinson Law Professor Samantha Prince, an expert on retirement plans. "The 401(k) plan is already here, people are already in it, and now is the time for 3M to come out and get rid of their vesting schedule altogether."

Such a move could save money by cutting out the administrative costs involved in tracking who gets how much of the company's contribution based on years of service.

3M offers a three-year graded vesting schedule, which Prince said is better than the all-or-nothing "cliff" offered by firms like Amazon and Home Depot that only vest at all after three years.

Company officials did not say how much money the switch to defined-contribution retirement plans would save but instead focused on how 401(k) plans give employees "more flexibility and control when it comes to investing in their future."

3M projected a long-term pension benefit obligation of $13.5 billion as of last year, which was nearly fully funded. The company's annual pension costs have been declining in recent years. The 2023 pension expense was $145 million, and 3M had more than $34 billion in revenue in 2022.

Because 3M has pledged billions to settle litigation over PFAS and earplugs — and soon will shed a quarter of its revenue in a spinoff — some investors fear a dividend cut could be on the horizon.

Moving away from pensions may generate significant savings for the company, Prince said, "but they might be doing it for simplicity's sake, too."

"Everyone is rowing in different directions when it comes to retirement plans, but they're all saying it's great for employees."