Posted By: John Steele

By Dan WilchinsFri Nov 3, 5:58 PM ET

NEW YORK (Reuters) - Citigroup (NYSE:C - news) plans to stop
contributing to its main U.S. pension plan beginning in 2008
and will instead bolster plans that employees contribute to,
according to an internal memo obtained by Reuters. ADVERTISEMENT
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Many traditional manufacturing companies have been freezing
their pension plans to cut costs, but Citigroup's move will
increase the company's compensation costs, to the chagrin of
some investors.

"Citigroup has been making a lot of investments that are
supposed to pay off in two or three years, but investors would
like to see some cost cuts that will bring results quicker than
that. I don't see how this helps," said Lee Norton, an analyst
at JS Asset Management, which owns Citigroup shares.

Citigroup said in a memo that in addition to bringing its
retirement plans in line with the rest of the industry,
employees had requested the changes, which simplify their
retirement plans.

Citigroup at the end of 2005 had 140,000 full-time and
8,000 part-time employees in the United States and 159,000
full-time employees outside the U.S. It has about $10 billion
of pension assets.

The company had previously allowed most of its U.S.
employees to be in both a cash balance pension plan and a
defined contribution plan.

A cash balance plan does not promise an employee a
pre-defined payout. Instead, the employer makes an annual
contribution to the plan. When the employee retires, he or she
can receive the funds as a lump-sum payout, or use the funds to
buy an annuity. Employees that leave the company can take with
them the funds that had been contributed.

In contrast, employees in a defined contribution plan,
known in the U.S. as a 401(k) plan, can choose their
investments. Employers typically match some percentage of an
employee's contribution.

Citigroup will match up to 6 percent of an employee's
contribution, and make a fixed contribution of 2 percent to
employees whose total compensation is $100,000 or less.

A small percentage of Citigroup employees are in a legacy
pension plan that will not be frozen.

Three years into the reign of Chuck Prince, Citigroup is
under big pressure to boost its profit growth and rein in
costs. In the first nine months of 2006, Citigroup's revenue
rose 5 percent, while operating expenses rose 13 percent.

That performance is weighing on the company's shares, which
have risen just 2.2 percent this year, while the KBW Bank index
(^BKX - news) has risen 8.1 percent.

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