When NYNEX Corp. and Bell Atlantic Corp. merge, a hybrid defined benefit plan such as a cash balance plan probably will be adopted, observers predict.
The merger will create a company with more than $29 billion in defined benefit assets and more than $10 billion in defined contribution assets; that total might be whittled down, however, by 3,000 job cuts expected from eliminating redundant administrative positions as a result of the merger.
As for the post-merger money management stable, at least six firms are well-positioned, because they manage money for both funds in the same asset classes. They are: Capital Guardian Trust, Los Angeles, and State Street Global Advisors, Boston, international equity; Corporate Property Investors, New York, and Heitman/JMB Advisory Corp., Chicago, real estate; and Standish, Ayer & Wood, Boston, and Miller, Anderson & Sherrerd, West Conshohocken, Pa., bonds.
In all, NYNEX has 33 outside money managers for its defined benefit plan; Bell Atlantic, 25.
The future and leadership of the pension staffs is unclear, although the companies already announced a NYNEX executive - Frederick Salerno, current finance vice chairman - will be the new company's executive vice president of finance, overseeing the treasury and financial services departments.
Candace Cox, president of NYNEX Asset Management, which oversees the NYNEX pension fund, referred calls to the NYNEX media relations group. A NYNEX spokesman said there have been no decisions about the structure or staffing of the pension plan.
A spokesman for Bell Atlantic said plans for integrating the pension funds are "a priority that will be dealt with later." He couldn't say how many job cuts will come from the pension area. Bell Atlantic's pension staff is headed by Thomas Cowhey, executive director, trust asset management; Mr. Cowhey did not return calls.
The composition of the pension investment staff could depend, in part, on the merged companies' commitment to internal management. NYNEX has about $2 billion internally managed, while virtually all of Bell Atlantic's assets are externally managed.
Observers agree the most likely scenario is a merged cash balance or other hybrid plan that accommodates workforce fluctuations.
Bell Atlantic converted its defined benefit plan to a cash-balance plan Jan. 1, and NYNEX was considering a similar move, but not before 1997 (Pensions & Investments, Nov. 13).
Consultants noted it is easier to switch from a traditional defined benefit to a cash balance plan than it is to go the other way.
"It's probably a little easier, because you don't have to take the people you've just communicated with the benefit of cash balance and 'uncommunicate' them," said Ira Siegler, principal of Kwasha Lipton, Fort Lee, N.J. Kwasha has a consulting and administrative relationship with the Bell Atlantic fund, but Mr. Siegler would talk only in general terms, not about Kwasha's client.
"Traditional defined benefit plan people have their accrued benefits calculated and converted into opening balances and they just go forward."
When R.J. Reynolds Industries Inc. and Nabisco Brands Inc. merged, one company had a traditional defined benefit plan and one had a cash balance plan, noted Howard Rog, an actuarial consultant with Sedwick Noble Lowndes, Melville, N.Y. The final result was a joint pension equity plan very similar to the cash balance plan, he said.
"If I had to guess.....they would go to the cash balance plan or, maybe the same thing would happen (here) that happened at RJR Nabisco - so it looks like it's a new plan for everybody," said Mr. Rog.
Observers noted merging the employee stock ownership plans will be simpler, because the merger is a friendly one among two public companies.
Like other shares, the ESOP stocks will need to be voted to approve the merger. The allocated shares will be voted by the individual employees, but the unallocated shares will be voted by the plan trustee, who is usually directed to vote in the same proportion in which the employees vote the allocated shares.
In some cases, companies have extinguished ESOPs during transactions, but that doesn't look likely here, said Max Schwartz, a partner in the New York law firm Kramer, Levin. "Since both companies have ESOPs, my sense is they will probably continue the ESOPs," he said.
As for the employee benefit assets and their allocation, NYNEX has a $15.8 billion defined benefit plan allocated 63.8% in stock, 23.5% in fixed income, 0.2% in cash, 5.4% in real estate and 7.1% in alternative investments.
Bell Atlantic has a $13.3 billion defined benefit plan allocated 60.2% in stocks, 27.1% in bonds, 3.1% in cash, 7.3% in real estate and 2.3% in alternative investments.
NYNEX's $5.1 billion defined contribution plan is 46.1% in company stock, 22.4% in other stock, 3.1% in fixed income, 25% in GICs and BICs and 3.4% in other investments.
Bell Atlantic has a $4.53 billion 401(k) plan and a $587 million ESOP. Its DC assets are allocated 57.9% in company stock, 11.3% in other stock, 1.3% in fixed income, 24.4% in GICs and BICs, 2.8% in cash and 2.3% in other investments.
