A proposal for the future of the pension funds of Burlington Northern Inc. and Santa Fe Pacific Corp. likely will be made in October, a Burlington Northern spokesman said.
Such a plan would be included in a request to the Interstate Commerce Commission for approval of a merger of the two companies. The new company would be named Burlington Northern Santa Fe Corp. If the two pension funds are merged, a $1.15 billion fund would be created.
Officials at both companies say it's too early to speculate whether and how the new entity will combine the two defined benefit plans and three defined contribution plans held between them.
But combining and streamlining the management of the defined benefit plans is one way the new company is likely to achieve better efficiencies, said Mark Maselli, at principal at employee benefit consultant, Kwasha Lipton, Fort Lee, N.J., which does not do work for either pension fund.
Santa Fe Pacific's defined benefit plan totaled about $667 million as of Sept. 30, 1993, according to its annual report.
Burlington Northern's plan totaled $490 million as of Dec. 31, 1993, the annual report said. Santa Fe's fund is managed by eight external managers; Burlington Northern, 12 managers.
Santa Fe's fund has been more conservatively managed, with an asset mix of 60% bonds, 35% equities and 5% real estate. Burlington Northern had 52% of assets in domestic equities, and 14% in international equities, according to the Money Market Directory. The rest of the fund's allocation was 8% in cash, 11% in real estate and 15% in bonds.
"I think it's very likely that they're going to merge the plans, especially if the new companies are going to make it a 'transparent merger,' where it ceases to matter what company you worked for before the deal," said Mr. Maselli.
"The provisions for both (defined benefit) plans look fairly similar, for instance, with the same type of early retirement provisions. Merging the plans will allow the new company to reduce the number of administrative functions and the number of money managers, as well as IRS filings and every other function.
"They may not make any changes, but I think they probably will to save duplication. But there's no hurry about it. They could continue to run the plans separately for some time as they implement changes, post merger," said Mr. Maselli.
The Santa Fe Pacific defined benefit plan was overfunded by $95.5 million over its accumulated pension obligation as of Sept. 30, according to its 1993 annual report. The Burlington Northern plan has an unfunded liability of $114 million, according to its annual report.
Mr. Maselli said the merger of the company's defined contribution plans may be a little more difficult, because plan provisions differ.
"The employer match on Santa Fe's 401(k) plan is more liberal," said Mr. Maselli, "But they could still combine the plans and build in slightly plan different provisions for the workers of each company, using grandfather clauses as needed. I think the new company can gain efficiencies in the DC plans as well, building a single, streamlined plan for all employees, cutting back investment management fees and setting up a standard plan."
Santa Fe Pacific uses bundled services from Vanguard Group of Investment Cos., Valley Forge, Pa., for its $200 million (as of June 30, 1993) 401(k) plan. Like the defined benefit plan, the 401(k) is fairly conservative, with 75% of assets invested in guaranteed investment contracts and bank contracts, 7% in equities, 5% in cash,and 13% in company stock, according to the Money Market Directory. By contrast, the $266 million 401(k) plan (as of August 1993) of Burlington Northern has six investment options, plus company stock. The managers weren't identified.
The Money Market Directory listed an asset allocation of 37% GICs/BICs, 7% U.S. government bonds, 6% small-capitalization equities, 23% indexed equities, 4% real estate, 3% international equities and 20% company stock.
Burlington Northern established a new 401(k) savings plan for all union employees Jan. 1, 1994, which does not include an employer match.