CHICAGO -- Amoco Corp.'s $2.8 billion traditional defined benefit plan will convert to a cash balance plan by next July.
At that time, it will be combined with BP America's $2.1 billion cash balance plan, said Craig Weaver, manager of compensation and benefits for BP Amoco PLC in North America.
Amoco merged with British Petroleum Co. PLC late last year. British Petroleum's U.S. operation, BP America, switched to cash balance in 1989; Amoco executives were planning to start a cash balance plan, but had put the idea on hold -- until now -- because of the merger.
"We have a strong desire to provide employees with a common set of benefit plans," Mr. Weaver said.
Company executives had decided the work force was mobile, he said, so portability of benefits and lump-sum payout options were important elements of any pension plan.
BP Amoco also is offering Amoco employees an unusually long transition period to the new plan -- through 2012, they will receive whichever benefit is higher, should they leave the company or retire.
And, if BP Amoco's acquisition of Los Angeles-based Atlantic Richfield Co. becomes a reality, it is expected that ARCO's $2.5 billion in defined benefit assets will become part of the cash balance plan as well.
Meanwhile, the investment management staff in Chicago will review the combined BP Amoco cash balance plan's money managers and investment strategy in the next 12 to 18 months, a spokesman said.
BP America's managers are: Alliance Capital Management; Baring Asset Management Ltd.; Fiduciary Trust Co. International; Hotchkis and Wiley; Mellon Capital Management Corp.; J.P. Morgan Investment Management Inc.; Fayez Sarofim & Co.; Brown Capital; Sanford C. Bernstein & Co. Inc.; Valenzuela Capital Partners; and Seix Investment Advisors.
Amoco's defined benefit managers are: Bankers Trust Co.; DSI International Management Inc.; Franklin Portfolio Associates; RhumbLine Advisors: Travelers Investment Management Co.; State Street Global Advisors; WorldInvest Ltd.; Lend Lease Real Estate Investments; ARM Capital Advisors Inc.; Chase Manhattan Bank NA; E.H. Capital Group; First Quadrant LP; Innovest Capital Management; Lazard Asset Management; Martingdale Asset Management LP; Noddings Investment Group; Numeric Investors LP; Salus Capital Management; Standish Ayer & Wood Inc.; and SSI Investment Management Inc.
According to one consultant, when companies switch to cash balance plans, money managers might not need to change, but asset allocation might.
"It's a matter of philosophy," said Eric Lofgren, director of the benefits consulting group in the Philadelphia office of Watson Wyatt Investment Consulting.
In such cases, most companies settle on one of three basic strategies:
* Some, in order to cut plan costs, increase equity exposure in order to boost investment income. Because cash balance plans have lump-sum payout provisions, it's likely the plan will lose assets rapidly as employees leave the company, Mr. Lofgren said. Executives looking to cut back on contributions try to make the most of investment income, while paying out the same interest rate on each employee's account.
* Some, in an attempt to stabilize plan expenses, move toward higher bond allocations. The goal is to keep plan assets and liabilities growing at the same rate.
* The largest group of plan sponsors involved in such changes does not change investment strategy much -- other than to keep assets as liquid as possible to pay out lump-sum benefits.
After plan consolidation decisions are made, the investment and benefits staffs are expected to shrink. The staffs will be based in Chicago, Amoco's home. While Mr. Weaver will stay on board, he said, people will be leaving from both organizations. He declined to say how many.