AKRON, Ohio -- FirstEnergy Corp. probably will drop money managers as it consolidates the pension funds of Ohio Edison Co. and Centerior Energy Corp.
Donald C. Perrine, director-investment management at FirstEnergy, expects the defined benefit plan will have "significantly fewer managers than we have today.
"We will cut back on domestic equity, international and fixed-income managers to a much more workable number."
FirstEnergy has $2.2 billion in retirement assets, of which $1.54 billion is defined benefit and the remainder, 401(k) assets.
The $462 million Centerior defined benefit plan has 22 money managers; the $1.08 billion Ohio Edison fund has 13.
Only two firms -- Barclays Global Investors and Pacific Investment Management Co. -- manage money for both pension funds. BGI runs indexed equities and bonds for Ohio Edison, and an enhanced stock index fund for Centerior. PIMCO manages active bonds for both funds.
Altogether, the defined benefit plans have 11 domestic equity managers, seven international equity managers and nine fixed-income managers.
Mr. Perrine oversaw the pension assets at Ohio Edison and now handles the funds of the combined entity. Gregory A. Tropf, who oversaw Centerior's employee benefit investments, left to join a consulting firm.
FirstEnergy is undertaking major asset/liability and asset allocation studies for the combined defined benefit funds. At the same time, it is reviewing the manager stable.
The company could complete the studies by June. Ennis Knupp & Associates, Chicago, is assisting.
The two funds will operate with their own managers and asset allocations until they are restructured. The assets, however, already have been combined in a single trust.
"We don't want to make any changes with the managers until we decide how to redeploy the assets," Mr. Perrine said.
"We plan to evaluate each manager while we do the asset/liability study. Once we decide where to invest, we can determine who we will invest it with."
Ennis Knupp has been asked "to look at broad categories of assets, such as domestic equities and international, to see who are good managers and see if any are being used by Ohio Edison or Centerior today," Mr. Perrine said.
"We haven't ruled out going outside, if (the restructuring) can't be done with existing managers."
Ohio Edison's defined benefit allocation is 61% domestic equity, 16% international equity, 17% fixed income, 5% real estate and 1% cash.
Centerior's allocation is 40% domestic equity, 21% international equity, 20% fixed income, 6% group annuity contracts, 2% venture capital, 6% real estate and 5% cash.
Mr. Perrine said FirstEnergy has no plans to do a master trustee search. Bankers Trust Co., master trustee for the Ohio Edison fund, will continue in the role for the combined FirstEnergy fund. Key Bank was the master trustee for the Centerior fund.
For their 401(k) plans, Centerior's plan will be merged into Ohio Edison's plan, which will become the new FirstEnergy plan. Each company's 401(k) now has about $340 million, making the combined plan about $700 million.
Centerior's 401(k) investment choices and managers will be dropped after the transition is completed, expected Jan. 1. They are: a balanced fund, managed by Dodge & Cox; an emerging growth fund, Van Kampen American Capital; Capital Opportunities growth fund, Stein Roe & Farnham Inc.; American Funds New Perspective global equity fund, managed by Capital Research & Management; a National City separate account growth fund; and an income fund from Society Asset Management.
The new First Energy plan largely will be based on Ohio Edison's 401(k) plan.
Choices include a brokerage option through which many of the Centerior funds will still be available. Others are a company stock fund and a Standard & Poor's 500 index fund, a balanced fund, a small-cap fund and a stable-value fund, all managed by State Street Global Advisors, Boston.
On Jan. 1, it added the American Funds EuroPacific international growth fund, managed by Capital Research & Management Co. That replaced an international index fund managed by State Street.
The newest option, effective July 1, is the Armada domestic equity growth fund, managed by National City Bank.
Effective July 1, Centerior's non-union employees will be added to the FirstEnergy plan. FirstEnergy expects to add Centerior's union employees to the plan Jan. 1.
Mr. Perrine said FirstEnergy will keep Centerior's investment choices and managers until union employees join the new plan.
State Street will continue as the record keeper for the FirstEnergy 401(k) as it did for the Ohio Edison plan. Key Corp. will be dropped as record keeper of the Centerior plan.
In addition to the retirement assets, FirstEnergy has more than $300 million in nuclear decommissioning trust funds, according to a spokesman.
Centerior has $186 million, managed by First Chicago NBD Investment Management Co., Independence Investment Associates Inc. and NISA Investment Advisors LLC.
Ohio Edison has $106 million, managed by Phoenix Duff & Phelps.
Penn Power, another FirstEnergy unit, has a $15 million decommissioning trust, managed by Mellon Bond Associates and Mellon Capital Management Corp.
More details about the decommissioning funds weren't available.
