NEW YORK -- American Online and Time Warner executives are already thinking about how to merge their retirement assets, just two weeks after the announcement that the companies will merge, an AOL spokesman said.
America Online Inc., the acquirer, has only defined contribution plans. Time Warner Inc. has a $1.5 billion defined benefit plan, and a $4.4 billion 401(k) plan.
Sitting on the four-member committee examining the pension ramifications of the merger are AOL executives Robert Pitman, president and chief operating officer, and Kenneth Novack, vice chairman; and Time Warner executives Richard Parsons, president, and Richard Bressler, chief financial officer.
None of the four could be reached by deadline.
"If the acquiring company doesn't have a defined benefit plan, it would likely terminate the defined benefit plan of the acquired company," said Joesph Masterson, vice president of 401(k) consultant and service provider Diversified Investment Advisors, Purchase, N.Y. "If AOL is running the new company, you may see the Time Warner defined benefit plan terminated."
A Time Warner spokeswoman, however, said the company does not anticipate changes to its defined benefit or defined contribution plans.
However, a wild card in this scenario is that some of Time Warner's employees are unionized, and any changes to those contracts would have to be negotiated.
Both companies have defined contribution plans. Fidelity Management & Research Co., Boston, is the full-service provider for the Time Warner plan. AOL has just hired Fidelity as its service provider for its two 401(k) plans.
"It should make it easier to combine the plans with Fidelity as the vendor for both," said Mr. Masterson.
But there are major differences in the investments in the companies' plans. For example, Time Warner's 401(k) plan has 49% of its assets in Time Warner stock; AOL's 401(k)s do not have a company stock option because AOL has an employee stock purchase plan.
According to Ethan Kra, a consultant with William M. Mercer Investment Consultants Inc., New York, the merged companies benefit plans could take several different forms.
"It's not one-size-fits-all," he said. "Many large conglomerates with different lines of business will provide different benefits to different units. In many companies some employees will get defined benefit plans and other employees will get defined contribution plans."
IRS rules "specifically address different benefit plans for different lines of business," he said. "When two companies merge from different industries, I would not jump to a conclusion about the benefit plans. They may integrate them or they may keep them separate. It depends on how they view the attraction and retention of employees."