NEW YORK -- Even though Viacom Inc. is acquiring CBS Corp. in a $36 billion megamerger, it is likely CBS officials will be calling the shots for the New York-based merged company's pension plans.
A longshot possibility, however, is that executives of the merged company may decide to build an entirely new retirement program.
Still, most experts interviewed expect CBS' retirement program to prevail when Sumner Redstone and Mel Karmazin put their companies together.
"One would expect CBS (to run the funds) because it has been around longer and because there are more pension issues with CBS," said Christopher Dixon, an analyst who follows Viacom for PaineWebber Inc., New York.
Moreover, he added, "Fred Reynolds (CBS's CFO) understands the pension industry very well."
Indeed, CBS has more than $9.2 billion in pension assets and Viacom has only $1.5 billion. Included in the $9 billion are some pension liabilities CBS inherited from the old Westinghouse (prior to its acquisition of CBS).
When Westinghouse sold off its industrial businesses beginning in 1996, the individual pension funds (and their liabilities) went with the individual companies. According to Mr. Dixon, it's almost impossible to trace the size of the liability remaining with CBS. (CBS had an unfunded pension liability of $1.177 billion as of Dec. 31, according to its 10-K filing with the Securities and Exchange Commission.)
In the merger documents, Viacom said it would assume all of the existing pension liabilities of CBS. And, Mr. Dixon noted: "The free cash flow from the new company is more than sufficient to cover any liability going forward."
CBS also replaced its traditional defined benefit plan with a cash balance plan in April, joining several other large companies including IBM Corp. in making the switch.
Some consultants think Viacom might switch its defined benefit plan to a cash balance plan.
"A reasonable person could look at it and say it's not surprising to see Viacom's (pension) assets in a cash balance plan," said one consultant, who asked not to be named.
When it switched to the cash balance plan, CBS also cut off any new employees from participating in it, making them eligible only for its new stock option plan and its 401(k) plan.
"It wouldn't surprise me if (the new) Viacom followed their lead and cut off their (defined benefit) pension plan from new employees," said the consultant.
This consultant also added he didn't think pension plan issues would be very high on the merged company's agenda.
"We are at best a footnote to the new Viacom," he said.
But it's too soon to know what will happen. Richard Koski, a principal with Buck Consultants Inc., Secaucus, N.J., said, "In a deal of this size, it usually takes a year or two to sort out the pension plans."
He acknowledged the CBS switch to a cash balance plan is "cutting edge" and it would be "disruptive" to CBS employees to go through another pension plan design so soon after this one.
But he still thinks it's possible the merged company may decide "to address plan design from the ground up and end up with a third type of plan."
Added Ethan Kra, a consultant with William M. Mercer Investment Consultants Inc., New York: " The (merged) company can start with a clean slate and figure out what is best." He said there is really no rule to predict what will happen after a merger.
"Companies have adopted new designs of plans and things got turned upside down. It will depend on how they want to run the company going forward."
Mr. Koski thinks "they could retain several types of plans in one organization."
But he thinks it's more likely the smaller Viacom plan might be merged into the CBS plan. He also thinks the new Viacom might just freeze the CBS cash balance plan -- which CBS itself essentially has done already by not allowing any new employees into it.
However, he does expect the merged company to move to consolidate the 401(k) plans quickly, because of the cost savings that can be realized from doing so. CBS's 401(k) plan has about $900 million in it; Viacom's, about $795 million.
"The logic today is to shift the burden of funding a pension plan from the employer to the employee," said a consultant. "In 401(k) plans, most costs are born by the employee."
About 32% of Viacom's 401(k) plan is made up of company stock vs. 6% for CBS. Although it couldn't be confirmed, Mr. Koski said it is likely Viacom's company match was in employer stock.
He thinks it's likely the new Viacom might follow what the old Viacom did, in this case.
"Usually when a company without a stock orientation (in its 401(k) plan) is bought by a company with a stock orientation, it usually moves toward a stock orientation over a period of time," he said.
"Some employees love having company stock and other cultures have an anti-stock bias. But there probably wasn't anti-stock feeling at CBS if they were able to put a stock option plan in place. So they may be able (to get employees) to more easily accept company stock as a match in the 401(k) plan."