* The company will freeze its non-union defined benefit pension plan
effective June 30, and replace it with a defined contribution plan
having a fixed company contribution rate of 4 percent of base salary.
This means that no future benefits will accrue under the pension plan,
but pension benefits earned through June 30 will be available to
employees when they retire under the terms of the plan.
* Employees will still be eligible to make their own contributions to the
company's 401(k) Income Savings Plan to help provide for their own
retirement income. Investment selection for the defined contribution
assets will be made by the employee, as is the case with the current
401(k) Income Savings Plan.
* Certain longer service employees will be eligible for a supplemental
contribution from the company for up to five years. The amount of the
supplemental contribution is based on replacing a portion of the
estimated future benefit from the legacy pension plan, offset by the
estimated future contributions from the new defined contribution plan.
* The company intends to seek similar plan changes for the remaining U.S.
workforce as collective bargaining agreements are renegotiated.
* The change has no impact on current U.S. retirees/former employees with
vested benefits or employees who terminate or retire by June 30, 2006.
* The U.S. Profit Sharing Plan will not be impacted by these changes.
The company believes this change will balance the needs of providing retirement security for our employees, while providing a more predictable cost structure for the company. Employees will also benefit from having a more portable benefit. This fully funded defined contribution balance moves with the employee during their career should they change employers. The company believes the new plan provides a competitive retirement plan for its employees going forward, which is in balance with the company's need to control cost.
The company will continue to recognize pension expense and cash funding obligations for the frozen defined pension plan over the remaining life of that liability. As such, the company does not expect any full year savings in the near future, as any reduction in defined benefit pension expense is expected to be offset by the new defined contribution expense. The volatility in pension expense should decline.
Stepan Company, headquartered in Northfield, Ill., is a leading producer of specialty and intermediate chemicals used in household, industrial, personal care, agricultural, food and insulation related products. The common and the convertible preferred stocks are traded on the New York and Chicago Stock Exchanges under the symbols SCL and SCLPR.