BALTIMORE - T. Rowe Price Associates, one of the nation's largest defined contribution service providers, terminated its defined benefit plan and created a "super-401(k)" plan.
The defined benefit plan had $4 million in assets as of Dec. 31; it covered about 61% of T. Rowe's 2,700 employees. The fund was managed in-house.
Each employee participating in the defined benefit plan rolled that distribution into the newly beefed-up 401(k) plan.
"We think we've improved benefits for all participants and improved the consistency of the retirement program," said Andrew Goresh, vice president of human resources and administrative services.
Now, all of T. Rowe Price's eligible employees belong to the $160 million super-401(k) program. It's called a super-401(k) because a profit-sharing option is built into the plan. Prior to 1997, employees were either members of the 401(k) or the profit-sharing plan, depending upon what part of the company they joined, Mr. Goresh said.
Aon Consulting Worldwide, Baltimore, was the consultant on the project.
The main reason for terminating the defined benefit plan was to put all employees in one, cohesive system; another reason was that having a defined contribution plan for its employees was more in line with the services T. Rowe Price offers.
"We altered the profit-sharing and 401(k) so that all employees participated in both plans," he said. "The intent of this was to keep employees whole."
Prior to the termination last fall, the defined benefit plan guaranteed employees a benefit equal to 1% of final base pay up to 25 years of service. Mr. Goresh said the plan was put in place in 1987 to provide a security blanket for certain employees. Many employees regarded the defined benefit plan as being supplemental to the defined contribution plans, Mr. Goresh said.
"It wasn't providing the level of security we thought it would," he added.
Now, employees can contribute up to 6% of pay to the new super-401(k) plan, and T. Rowe will match 50 cents on the dollar up to the full 6%. The company also added a money purchase plan, which started in January, and will contribute on average 7.2% of pay for each employee.
Under the old 401(k) plan, employees contributed up to 6% and T. Rowe Price matched dollar for dollar. Mr. Goresh said the change in the employer match was due to its contribution to the new money purchase plan.
Previously, the T. Rowe Price contributed 0% to 15% of annual pay to the profit-sharing plan, depending on profitability. Now, the company will contribute 0% to 6% of pay to the plan.
The new super-401(k), which is managed in-house, will not change investment options; participants are fully vested after five years and are able to choose from all of T. Rowe Price's mutual funds.
Overall, the transition to the new retirement program has been smooth, Mr. Goresh said.
"We thought we might run into some resistance because people usually don't pay attention to their retirement plans until you change them," he said. "But it went remarkably smooth."
Mr. Goresh said employees were involved early in the decision-making process to help craft an education strategy to explain the new plan. Employees were able to better target the issues affecting their colleagues.