CLINTON, Miss. - If WorldCom's merger with MCI is anything to go by, it's curtains for Sprint's $3.2 billion defined benefit plan.
However, observers say it may take months or even years for decisions to be made. For one thing, Federal Communications Commission Chairman William Kennard already has cast a pall over the $129 million deal by questioning its value to consumers.
Even if the proposed deal - which would be the largest-ever merger in history - gets a thumbs-up from regulators, it's not certain what the renamed WorldCom will do with Sprint's $6 billion-plus in retirement plan assets, which treble MCI WorldCom's $2 billion-plus in retirement assets.
"I think it's going to be quite a while until that is known," said one observer, citing regulatory hurdles. Officials at MCI WorldCom and Sprint declined to comment.
The past, however, might provide a template. After the September 1998 merger with Washington-based MCI Communications Corp., the Clinton, Miss.-based communications company decided to streamline its benefit plans. As of Jan. 1, MCI's defined benefit plan was frozen, with no future pension credits earned.
Benefits shifted
Instead, retirement benefits now are accrued under the MCI WorldCom 401(k) plans, which had $1.2 billion in assets at year-end 1997, the most recent numbers available. Employees can contribute between 1% and 20% of pay; and MCI WorldCom fully matches the first 5%, according to a company spokeswoman.
MCI WorldCom has taken similar steps in its overseas operations. For example, after it acquired a 51.8% stake in July 1998 in Brazilian telecommunications firm Embratel Participacoeso SA, the firm's underfunded defined benefit plan - which has only $152 million in assets and $345 million in unfunded liabilities - was frozen to new employees. (Embratel made up the difference out of corporate cash a year ago, said Luigi Giavina, financial director of the Brazilian company.)
Existing employees were given the choice of switching from the existing plan to a new defined contribution plan. An unexpectedly high percentage - 97% - of workers joined the new plan, enabling Embratel to gain greater cost savings in the future, but costing it a R$47 million (U.S.$38.9 million) charge in the fourth quarter.
Sprint's 401(k) plans are roughly half as generous as those of its MCI counterpart, providing a 50% match on participants' contributions up to 6% of pay, but Sprint employees also accrue benefits in the defined benefit plan.
DC gaining
Sprint had $2.3 billion in defined contribution assets at the end of 1997, but sources said those assets now have surpassed the $3.17 billion in the defined benefit fund.
Managers are substantially different. For its plans, MCI WorldCom uses American Funds EuroPacific Growth Fund; a Dreyfus Standard & Poor's 500 index fund; and Putnam Investment's Voyager, New Opportunities and Balanced funds, according to company reports filed with the Securities and Exchange Commission. Also, MCI has a stable-value fund, and employer stock comprised two-fifths of 401(k) assets as of Dec. 31, 1997.
Less public information is available on Sprint's 401(k) plans, but the 1999 Money Market Directory says the plan used Fidelity Institutional Retirement Services Co., Boston, and Pacific Investment Management Co., Newport Beach, Calif., as of year-end 1997. Fidelity also was the record keeper.
Meanwhile, MCI's defined benefit plan, with $581 million in assets as of Dec. 31, 1998, according to the company's annual report, is virtually fully funded.
External managers include Fidelity Management Trust Co., Boston; Glickenhaus & Co., New York; Grantham, Mayo, Van Otterloo & Co. LLC, Boston; Mellon Bank Corp., San Francisco; PIMCO; Rowe Price-Fleming International Inc., Baltimore; and The TCW Group Inc., Los Angeles, according to the 1999 Money Market Directory.
That list has some overlap with the manager roster for Westwood, Kan.-based Sprint's defined benefit plan: Grantham, Mayo; PIMCO; and Rowe Price-Fleming manage portfolios for both funds.
The much larger Sprint plan has a far bigger roster of managers. Other managers, according to the 1999 Money Management Directory, are: AEW Capital Management, Boston; Barclays Global Investors, San Francisco; Dimensional Fund Advisors Inc., Santa Monica, Calif.; Fischer, Francis, Trees & Watts Inc., New York; Friess Associates Inc., Greenville, Del.; W.R. Huff Associates Management Co., Morristown, N.J.; Jennison Associates LLC, New York; LaSalle National Bank NA, Chicago; Lend Lease Real Estate Investments, Atlanta; J.P. Morgan Investment Management Inc., New York; T. Rowe Price Associates Inc., Baltimore; Sasco Capital Inc., Fairfield, Conn.; Sound Shore Management Inc., Greenwich, Conn.; Standish, Ayer & Wood Inc., Boston; and Wall Street Associates, La Jolla, Calif.
The Northern Trust Co., Chicago, is the custodian for the Sprint defined benefit plan, while Mellon Trust, Pittsburgh, is listed as MCI WorldCom's master custodian, according to the MMD.
Hewitt Investment Group, Lincolnshire, Ill., is the investment consultant for both companies. Hewitt officials declined to comment on the situation.
