MONTREAL -- The Seagram Co. has joined a growing list of major companies setting up cash balance pension plans by establishing one for 8,900 of its U.S. employees.
Montreal-based Seagram last year consolidated the defined benefit plans of two acquired companies -- PolyGram Group Inc. and United Music & Video Distribution Inc. -- with the Seagram plan into a single $900 million cash balance plan for U.S. employees.
The consolidation "allowed us to streamline the pension plans from an administrative perspective," a Seagram spokeswoman said. It also provided "greater predictability of pension costs by removing the plateaus which exist with traditional defined benefit plans."
Under a cash balance plan, benefits normally accrue at a steady rate, whereas with a traditional defined benefit plan, there are usually benefit accrual spikes as workers near the ends of their careers. The steady rate of accrual makes the plan sponsor's job of predicting payouts easier.
The conversion to cash balance was undertaken to improve portability for a more mobile and "changing" work force, said the spokeswoman.
Cash balance plans are defined benefit plans but are based on an employee's career average pay, rather than on final average pay. In addition, with a cash balance plan a company establishes hypothetical accounts in employees' names. Each account is then credited based on a percentage of the employee's salary. Most cash balance plans offer a lump-sum payout provision or an annuity -- or a combination of the two -- making these plans more attractive to workers who change jobs frequently.
According to industry sources, the trend toward cash balance plan conversions is moving ahead, but at a slower pace in light of increased congressional concern about the shift from defined benefit plans toward hybrid pension plans.
Consultants now believe that between 500 and 1,000 plans have been converted to cash balance programs, most in the past five years.
In some cases, older workers have complained that cash balance plans favor younger workers over long-term employees. Some companies have offered healthy transition benefits for older workers to prevent reductions of benefits for longtime workers when cash balance plans are installed.
The Seagram spokeswoman said she was not aware of any such transition provisions in the Seagram conversion.
"I don't believe we have had any transition issues," she said.
One reason for the lack of increased transition benefits at Seagram might have been the large number of younger workers in the plan, according to one consultant, who wished to remain anonymous.
Of the participants in the Seagram plan, more than 6,000 were in the Universal Music Group, acquired by Seagram in 1995. Many of these workers are younger and stand to benefit from the conversion to cash balance, according to the consultant.