SCHAUMBURG, Ill. -- Motorola Inc. is adding a pension equity plan formula to its $3 billion defined benefit plan and reshaping its $6 billion 401(k) plan.
Like red-hot cash balance plans, the pension equity plan is a hybrid, designed to combine the best features of defined benefit and defined contribution plans.
The moves to develop a cutting-edge pension program are in response to employee demand and company executives' desire to attract best-of-class workers in a highly competitive industry.
Motorola is augmenting its traditional defined benefit plan with the pension equity plan to give its 70,000 active U.S. employees a more portable alternative with faster accruals and a formula that is more easily understood, said Sheila Forsberg, director of global retirement benefits strategy.
Asset allocation and money managers will remain the same.
Employees hired before July 1, 1999, may choose between the new plan and the traditional defined benefit plan, Ms. Forsberg said. All new hires will be in the PEP, which is scheduled to start July 1, 2000.
Although the PEP is a defined benefit plan, with the employer taking the risk of providing a benefit, "it is much simpler to understand," Ms. Forsberg said.
"People can take a lump sum when they leave and they don't have to retire from Motorola" to get the money," she explained.
Also, beginning July 1, 2000, employees who leave Motorola before retirement will be able to roll over their pension equity plan money into their 401(k) account, if they are a 401(k) plan participant.
The $6 billion 401(k) plan, meanwhile, is gaining five new investment options and automatic enrollment (meaning all employees are enrolled without taking any action; they must specify if they don't want to participate).
Motorola executives also are enhancing the company match and moving to daily valuation.
These changes will be phased in gradually between October and the third quarter of 2000, said Ms. Forsberg.
Right now, 12 investment managers oversee the assets in both the 401(k) and defined benefit plans, she said. Motorola executives plan to use the current lineup to run the new options as well.
Equity managers are: Jennison Associates LLC; Lincoln Capital Management; Ark Asset Management Co. Inc.; The Boston Company Asset Management Inc.; Independence Investment Associates; and Northern Trust Corp.
Fixed-income managers are: Harris Investment Management; Scudder Kemper Investments Inc.; Stein Roe & Farnham Inc.; and Weiss Peck & Greer LLC. International managers are Brinson Partners Inc., and Morgan Grenfell Capital Management Inc. Northern Trust is trustee for both plans.
Options to be added are long-term bonds, a second balanced fund, international, midsized equity and small. She doesn't yet know which managers will oversee which options.
The company match to the 401(k) plan will be enhanced, she said. The old match was based on Motorola's having profitability of 4% or greater each year, Ms. Forsberg explained. The match was dollar for dollar on the first 1% of pay and 50 cents on the next 2% of pay.
The new company contribution will be a fixed match regardless of company profitability. It will be dollar for dollar on the first 3% of pay plus 50 cents on the next 3% of pay, with a maximum of 4.5%, she said. The match will continue to be in cash.
Along with the investment changes, Motorola executives are creating their own retirement planning software, so Motorola workers can test drive their defined benefit plan choice in conjunction with various investment options and deferral rates in their 401(k). Workers also will be offered financial planning workshops during work hours and individual financial planning assistance.
The new retirement planning software, as well as a comprehensive pension education program that Motorola is creating with the help of Arthur Andersen LLP, Chicago, will be launched by the end of this year, Ms. Forsberg said.
The financial planning workshops will be offered during work hours. Although employees who choose to get individual financial planning will have to pay for it, the costs will be offset by a program Motorola started in 1996 that provides a total of $2,000 over an employee's career for financial planning assistance.
Motorola employees also will be receiving personalized statements beginning this fall that will include benefit projections for both the defined benefit and 401(k) plans, she said.