ST. LOUIS - General American Life Insurance Co. of St. Louis converted its traditional final-average pay plan to what it calls a performance pension plan.
The new plan, which has about 3,000 participants and $115 million in assets, is designed to make benefit values accrue more evenly.
General American is the latest of roughly two dozen employers that in the past two years have scrapped traditional "backloaded" defined benefit plans in favor of ones that let benefit values accrue more evenly during an employee's time with the company.
That group includes Dow Chemical Co., Midland, Mich.; IBM Corp., Armonk, N.Y.; and Ameritech Corp., Chicago.
Although they use slightly different names - Dow Chemical, for example, calls its program a pension equity plan - these companies have one thing in common: They recognize that a new design is needed to better meet the benefit needs of an increasing mobile and diverse work force.
"We really wanted to respond to changing workforce patterns. We wanted to provide more meaningful benefits to employees regardless of when they joined the company," said Gayle Malone, General American's retirement and benefits plan manager.
"This is a plan that is fairer to employees at all stages of their career," added Warren Winer, executive vice president.
Cost was not a factor in redesigning the General American plan. The cost of the new plan roughly equals the cost of the old pension plan.
Under the insurer's new plan, credits that are expressed as percentages will be used to calculate pension benefits. Those percentages gradually increase with age - from 2% for each year of service under age 35 to 8% beginning at age 55. Employees whose final average salary exceeds 60% of the maximum Social Security wage base in the year in which they end employment will receive additional credits.
When employees leave the company or retire, the percentages are added up and multiplied by final average pay. Employees can take the amount as a lump-sum benefit or as an annuity payable immediately. Terminating employees also can elect to delay taking the annuity, in which case the amount on which the annuity is based would increase 4% annually until it is taken at age 65.
General American, in introducing its new plan to employees, noted that the "world isn't the same as it used to be .*.*. just as our business has changed, so have you, our associates."
Years ago employees often spent entire careers with one company. Today, they are much more likely to work for several. "Some of you join General American later in your career .*.*. while others join early and stay for 10 or 15 years and leave before retirement age," General American said.
Those relatively short-service employees and midcareer hires fared poorly under the old plan, in which benefits were backloaded.
"There was a lot of appreciation for the old plan from employees who spent 30 years with the company and retired at age 65. The problem is that fewer and fewer employees fit that pattern," said David Slavney, a consultant with William M. Mercer Inc. in St. Louis, which helped design the new plan.
By contrast, the new plan, with its more even accrual of benefits, is fairer to more employees, added Roger Ingenthron, a Mercer principal in St. Louis.
Another advantage is that it is relatively easy for employees to compute their final benefit. They need only add the credits they earn and then multiply the sum of the credits by final average pay.
To ease the switch to a new plan, General American will phase it in gradually. Employees whose age and service, as of Jan. 1, totaled at least 65 and who are age 60 or older, will have their pension benefit calculated under the old formula.
In addition, employees whose age and years of participation in the plan total at least 65 and are less than age 60 will have their benefits calculated under the old plan for service through Dec. 31, 1995. Additional benefits will be calculated under the new pension plan for service from Jan. 1. However, final average pay will be used as employees' termination date for both calculations.
Employees whose combined age and service are less than 45 will have their entire pension benefit calculated under the new plan. Benefits earned under the old plan will be converted into "credits" and added to credits earned after 1995.