The Lotus and IBM retirement plans are expected to remain separate, despite IBM Corp.'s takeover of Lotus Development Corp.
Lotus' approximately $100 million 401(k) plan will not be merged into IBM's $7 billion 401(k) plan for the foreseeable future, said Russ Campanello, Lotus' vice president of human resources. Lotus employees also won't be able to participate in IBM's $28 billion defined benefit plan.
"The structure of the deal is to let Lotus run fairly independently .......and to let the company's culture stay whole. One of the things that lets a company's culture stay independent is retirement benefits," he said.
The differing cultures are reflected in each company's use of retirement plans. The younger Lotus makes heavy use of defined contribution and employee stock plans, whereas IBM relies largely on a traditional defined benefit plan.
"IBM has a much richer retirement benefits plan; Lotus has a much richer health care plan," Mr. Campanello added. "Their plan works very well (for them) and our plan works very well (for us)."
Indeed, Lotus is proceeding with getting the necessary regulatory approvals to terminate its approximately $9 million defined benefit plan, said Jeffrey Yanagi, director of compensation and benefits.
"We're going forward as if nothing has changed in terms of IBM," Mr. Yanagi said. On May 2, Lotus' directors voted to shut down the pension plan, which had been frozen since July 1, 1992. The termination is expected to kick in July 15.
Robert E. Shultz, director of U.S. retirement funds at IBM until March 1987, predicts several years will pass before IBM attempts to merge the two companies' retirement benefits. "If it came to merging the 401(k) plan, I would bet it wouldn't be for three or four years," he said.
He expects IBM to follow a similar path as when it acquired Rolm Corp. in 1984. IBM allowed Rolm employees to maintain their benefits, according to an IBM spokesman.
Keeping the two plans separate makes sense when the buyer has more generous retirement benefits than the acquired company, said Anna M. Rappaport, a managing director with William M. Mercer Inc., Chicago, who specializes in advising companies on mergers.
"If IBM's plans are more expensive and they put Lotus plans into their own, they are really hurting their margins," Ms. Rappaport said.
But, keeping separate plans could create problems later. For example, if IBM decides to transfer Lotus employees to its own operations, the computer giant will have to deal with such issues as whether those transferred employees can get credit for their years of employment at Lotus, she noted.
Meanwhile, Lotus' 3,000 U.S. employees stand to walk away with a windfall of millions of dollars as a result of the IBM takeover.
Employees of the 12-year-old Cambridge, Mass., software maker had approximately $9 million of company stock tucked away in their 401(k) retirement plan at the beginning of the year. Those holdings are now worth about $17.7 million as a result of IBM's rich buy-out price of $64 a share, almost twice the $32.50 price prior to IBM's announced takeover bid.
What's more, Lotus' employees also own about 2.5 million shares of the company through a discounted stock-purchase plan, whose value has nearly doubled to $160 million from $81.25 million prior to the acquisition announcement.
In addition to company stock, Lotus' 401(k) plan allows its participants to put their money into the Calvert Social Investment Fund Managed Growth, a guaranteed insurance contract fund, and four Fidelity funds - the Magellan fund, the Fidelity Overseas Fund, the Fidelity Growth Company and the Fidelity Balanced Fund.
The last three Fidelity funds were added to the Lotus plan in January.
Lotus employees have nearly half of their plan's holdings in GICs, about one-third in Magellan and about $7 million in the Calvert fund.