NEW YORK -- Despite all the hoopla and analysis surrounding the proposed $70 billion powerhouse merger of Citicorp and Travelers Group, such nitty-gritty details as how their respective pension plans will be affected have yet to be addressed.
Spokesmen at both companies said management has not looked at this issue, adding it has yet to be determined if or when the two companies' retirement plans, totaling $12.1 billion, might be integrated.
Citicorp spokesman Jack Morris noted the retirement plans of both are overseen by the human resources departments, and the directors of those departments will be meeting to discuss details.
"A transition team met . . . and this issue will be addressed, but not immediately," Mr. Morris said.
The defined benefit plan of New York-based Citicorp had $3.7 billion in assets as of Sept. 30, while its defined contribution plan had $2.7 billion, according to Pensions & Investments' annual survey of the nation's largest pension funds. The defined benefit plan at Travelers Group, New York, had $3 billion as of Sept. 30, according to Nelson's 1998 Directory of Plan Sponsors. Its defined contribution plan had $2.7 billion.
Both plans manage around one-third of their defined benefit assets internally. Consultants said that whichever plan has the larger internal business could sway the balance of power at the new pension fund.
"When pension plans are merged, it becomes very political as to who gets to head it,"said Ronald Peyton, president, Callan Associates, San Francisco. "But once the firms resolve who is in charge, everything else tends to move pretty quickly. However, that can mean a lot of consolidation, especially in terms of staff and money managers."
The benefit formula is another issue, said Stephen Nesbitt, senior vice president, Wilshire Associates, Santa Monica, Calif.
"If both companies offer similar levels of benefits, there's no problem. But if one plan is more generous than the other, the new company could decide to keep the two plans separate, because they can't reduce benefits. Another option would be to create a new plan entirely."
The defined contribution plans are easier to merge, Mr. Nesbitt explained, because each participant has his or her own account balance, and it's mainly a matter of changing or consolidating options that are offered.
According to a P&I survey, Citicorp's defined contribution plan is allocated to 39% company stock, 29% other stock, 5% fixed income, 11% cash equivalents and 16% stable value. Its managers are Chancellor LGT Asset Management for domestic equities and bonds, and Citibank Global Asset Management for international equities, international bonds and balanced funds. Travelers declined to provide any details of its defined contribution program.
The proposed merger of the two pension funds has other potential complications, said Citicorp's Mr. Morris. For example, Travelers, which acquired Salomon Smith Barney last year, offers different pension plans at its different companies, and those will have to be sorted out.
Travelers' investment profile is much more conservative than Citicorp's. As of Sept. 30, Travelers had only 7.2% of its defined benefit assets invested in stocks, while Citicorp had 70% in stocks.
Ronald Walter, director of investments at Citicorp, said the allocation changed at the end of 1997 to 60% stocks, 25% fixed income, 9% real estate and 6% cash and enhanced cash products. It uses Chancellor LGT Asset Management for domestic equities and bonds; Snyder Capital, domestic equities; Bridgewater Associates, international bonds; and Citibank Global Asset Management, a subsidiary of Citicorp, for international equities and international bonds.
RREEF Real Estate Funds is the only manager that invests for both pension funds, in real estate equity.
Travelers internally manages $63.8 million in fixed income and $34.3 million in cash or cash equivalent products, according to the 1998 Nelson's directory. Its asset allocation, according to Nelson's is 1.7% cash;, 7.2% equities; 11.9% fixed income; 2.3% general insurance and 76.9% other investments.
Travelers' outside money managers, according to the 1998 Nelson's directory, are Bankers Trust Co. for cash; Hoisington Investment Management, bonds; RCM Capital and LLC Equities, bonds; and Smith Barney,mutual funds.
The companies' actuarial profiles appear similar, judging by statistics cited in their annual reports. Travelers' discount rate is 7%, while Citicorp's is 7.25%. The discount rate is the rate at which the stream of future liabilities is calculated back to present value. Travelers expects its future compensation rate to grow at an average of 4.5% with a rate of return of 9%. Citicorp expects its compensation rate to grow at an average 5%, with a 9% rate of return.