Chemical Financial Corporation, a Michigan bank holding company, will partially freeze its defined benefit pension plan, effective 6/30/2006. [Form 8-K, 5/15] Benefit accruals will be frozen for employees with less than 15 years of service in exchange for an enhanced 401(k) contribution.
The company anticipates net cost savings of $2 million in 2007 from the pension freeze. In its most recent annual financial statement, Chemical Financial reported pension service costs for the 2005 year of $4.895, a portion of which will now be eliminated due to the freeze. The company's press release did not disclose the anticipated effect under FAS 88 of the curtailment event, which will probably be a loss recognized during 2006 arising from the recognition of previously unrecognized losses, net of the partial reduction in the plan's projected benefit obligation.
Blogging Employee Benefits 
Curtailment accounting under FAS 88 may require immediate recognition of prior service costs, depending on the significance of the transaction, but in cases in which the curtailment produces a gain, there woud be no such treatment of unrecognized losses. (If existing losses were extinguished by the curtailment gain, any excess gain would be immediately recognized.)
Comment by Bill Roberts — May 19, 2006 @ 7:11 am