The pension funds of future newlyweds Chrysler Corp. and Daimler-Benz AG are about as different as their product lines.
Chrysler's $21 billion in retirement assets, managed in Auburn Hills, Mich., include a generously overfunded $17 billion defined benefit plan.
Daimler-Benz' $3.8 billion fund, managed in Stuttgart, Germany, is only about 28% funded. Most of the money in the Daimler-Benz plan most likely comes from non-German plans.
The two companies officially announced their intention to merge May 7, in a stock swap worth $38 to $39 billion.
Given that the two companies' pension funds operate under separate legal and tax guidelines, the odds that pension assets would be combined are slim to none.
Pension assets after the merger will continue to be run separately in the United States and Germany, said Chrysler spokeswoman Rita McKay.
The merger "will have no effect whatsoever" on Chrysler's pension operation, she said.
Others outside the company agree that pension assets are likely to remain separate, for reasons originating on both sides of the Atlantic.
Chrysler's fund would lose a number of advantages were it transferred to where Daimler-Benz is based, said Bill Miner, an actuary for Watson Wyatt Worldwide consulting, Bethesda, Md. Mr. Miner is unfamiliar with Chrysler's pension operation.
"It's not like you're going to have a fund in Germany providing benefits for employees in the U.S.," he said.
Mark Schmid, Chrysler's director of pension fund investments, declined to comment on the fund.
Chrysler is the 39th largest U.S. sponsor of employee benefit plans, according to Pensions & Investments' directory of the country's biggest pension funds.
It had $17.3 billion in defined benefit assets and $4 billion in defined contribution assets as of Sept. 30. Chrysler had the 12th largest corporate pension plan in the survey.
In its defined benefit plan, Chrysler used 57 external money managers, including alternative and real estate investment funds.
Chrysler's annual report for 1997, with data as of Dec. 31, shows similar numbers. Total defined benefit assets were $17.2 billion, which is $2 billion more than its planned benefit obligations.
Ms. McKay said Chrysler paid $3 billion into the fund in 1993 and $2.5 billion in 1994.
From an investment timing standpoint, Chrysler's move to fully fund the plan couldn't have been better. Stock returns have been strong.
The Standard & Poor's 500 stock index returned 20.3% annualized from 1993 through 1997, while the Salomon Broad Bond index returned 7.5% in the same period.
Chrysler uses a 6.75% discount rate for valuing its obligations, a 10% long-term rate of return assumption, and assumes there will be 6% annual wage increases, according to its annual report.
Daimler-Benz uses discount rates ranging from 6.5% to 8% for valuing liabilities, expected long-term rate of return assumptions of 6% to 8%, and expected wage increases of 3% to 5%, its 1997 annual report says.
On the defined contribution side, P&I's most recent 401(k) directory shows Chrysler ranked 32nd among corporations in terms of total 401(k) assets for its two plans.
For Daimler-Benz, pension assets are much smaller on both a relative and an absolute basis.
The annual report for Daimler, one of the few German companies to trade on the New York Stock Exchange, showed pension assets of 6.8 billion deutsche marks ($3.8 billion), and total pension liabilities of 23.3 billion marks ($13 billion), all as of Dec. 31.
Some industry professionals said they believe Deutsche Bank probably is one of Daimler-Benz' external managers, given that Deutsche Bank owns 22% of the auto company. Daimler-Benz officials could not be reached, but others familiar with Germany's tax and accounting rules said Daimler-Benz' underfunded plan should not be a concern to the new company, to be called DaimlerChrysler.
There are tax advantages to creating a book-entry pension system in Germany, said Tony Broomhead, a senior investment consultant for Watson Wyatt in Chicago. German tax rules give a break to a company that creates a balance sheet liability for a percentage of its pension liabilities, he said.
But because the unfunded liability is included as a liability on Daimler-Benz' balance sheet, German companies are not penalized for using book entry reserve methods, say analysts at Morgan Stanley Dean Witter, New York.
The pension obligation shows up as a liability, and pension costs are expensed, said Trevor Harris, an international accounting specialist for Morgan Stanley and a professor of accounting at Columbia University, New York.
German pension plans generally have a very low level of funding because of tax incentives in the law, he said. And Mr. Harris said by no means would he expect DaimlerChrysler executives to combine the two plans to take advantage of Chrysler's overfunded plan.
Donna Boland, a spokeswoman for Daimler-Benz subsidiary Mercedes Benz of North America Inc., Montvale, N.J., declined comment on whether Mercedes' U.S.-style pension fund might be merged with Chrysler's. She said it's too early to say what changes there will be, if any.
Mercedes Benz had $208 million in defined benefit assets and $80 million in defined contribution assets, both as of June 30, 1996, according to the 1998 Money Market Directory of Pension Funds and their Investment Managers. Ms. Boland declined to provide updated numbers.
The 8-K report filed regarding the merger said it is "the specific intention" to keep aggregate benefits for employees at both companies at the same levels or higher for at least a two-year period.
