Kodak is retiring its employee pension plan

Kodak, as it tries to channel a popular rapper and become Kodak in-the-Black, is preparing to terminate its US pension plan in order to access the fund’s surplus, according to a new Wall Street Journal report.

The pension covers ~35,000 participants, and has $3.5 billion in assets vs. $2.3 billion in liabilities. Retiring the plan would allow Kodak, which has struggled to find its footing after digital cameras became a thing, to access some of the excess funds.

• The company expects to book an after-tax cash gain of $530 million–$585 million after settling liabilities, selling illiquid assets, and replacing the terminated plan with a yet-to-be-outlined new one for employees.
• For context, the company’s entire market cap is ~$502 million.

With the move, Kodak once again arrives late to a trend. Though pensions are still offered in many government jobs, only 15% of private sector employees are covered by them, compared to 46% in 1980.

On the death of pensions

Pensions were once a staple of mid-20th-century employment. But starting in the 1970s, the government began tightening regulations around pensions to ensure companies wouldn’t default on their obligations to retired employees.

Meanwhile, businesses realized the costliness of guaranteeing lifetime retirement payments. Pension plans were replaced by 401(k)s, which rely on employee contributions often matched by the employer. This shifted the burden of risk and responsibility from employer to employees, but offered more flexibility – a helpful feature as job-hopping became the norm.

👀 Looking ahead… Kodak’s move could become more commonplace. Companies with defined-benefit pensions in the S&P Composite 1500 Index – including household names such as Coca-Cola, Kraft Heinz, and Johnson & Johnson – were sitting on a combined $137 billion surplus as of February 29, 2024, the WSJ reports. In late 2016, they had a deficit of $500+ billion.