ROCKY HILL, Conn. - Now that Ames Department Stores Inc. has completed the acquisition of discount department store chain Hills Stores Co., it is creating a $200 million 401(k) plan with assets from the old plans.
Ames has hired New York Life Benefit Services Inc. to be the bundled provider for the new plan, said Karen Baker, Ames' director of compensation, benefits and human resources information systems. New York Life had been the service provider for Hills Stores' $95 million 401(k) plan; Ames' $105 million 401(k) plan was administered by American Express Retirement Services, she said. Assets are expected to be transferred in mid-November.
Neither company had a defined benefit plan, she said.
The investment choices in the combined 401(k) plan are being structured much like those in the old Hills plan, Ms. Baker said.
Even though Ames was the acquirer, the new plan is not taking its structure strictly from the old Ames plan but is borrowing a little from each of the old plans.
"Fundamentally, mergers and acquisitions are not necessarily predictable," said Joel Disend, president and chief executive officer of New York Life Benefit Services.
"Eighty percent of the time when a very large plan swallows a little one, the little one goes out of business," said Mr. Disend, whose company has worked in the mergers and acquisitions area for nearly 30 years. "When two companies are not significantly different in size, sometimes a little smorgasbord takes place. Especially when a group doubles in size like at Ames, it is more common to do a few tradeoffs."
The new plan will take the Hills investment structure but with an approach to the company match more like that of Ames, Ms. Baker said. The Hills plan structure was chosen because the plan's investments had been revamped just months before the acquisition by Ames was announced, boosting its already high participation rate a bit, Ms. Baker explained.
When each company had its own plan, Hills had a 78% participation rate; Ames, 60%. Hills had made changes to the plan and launched a communication campaign just before the acquisition was announced.
Company executives expect the participation will get even higher now when they launch the new plan. "We will really be marketing it," Ms. Baker said.
The plan will offer 10 new mutual funds and three asset allocation portfolios that use the 10 funds to create mixes for conservative, moderate and aggressive investors, Ms. Baker said.
The asset allocation mixes were fairly new to the Hills plan and had not been "tremendously popular," because there had been little time
for them to catch on, she said. The new Hills plan was unveiled July 1998; the acquisition by Ames was announced last October.
All the investment options will be New York Life funds or those of investment management firms with which New York Life has alliances, Ms. Baker said.
The options include: stable value from New York Life; PIMCO Total Return; two Mainstay Institutional funds (balanced and domestic index); American Century Income and Growth; MFS Massachusetts Investors; Janus 20 and Janus Overseas; INVESCO Dynamics; and Eclipse Small Capital Management Fund.
The new 401(k) plan will include a company match of 50% for the first 4% of pay and 100% for the fifth percent, Ms. Baker said. That is a slight improvement for Ames participants, who have received 50% for the first 5% of pay. Hills' old match was richer than this new match, Ms. Baker said "We're using a strategy more similar to Ames," she said.
New York Life executives expect the assets in the plan to grow to between $250 million and $260 million by the end of the first quarter of next year, in part due to the planned communications and education campaign, said she said.