Fort Worth, Texas - American Airlines Inc. is joining the crowded skies of companies that match participants' 401(k) contributions.
Starting Jan. 1, American will offer a dollar-for-dollar match up to 5.5% of salary. All contributions to the $3.4 billion plan have come strictly from employee deferrals.
Nearly 29,000 non-union American Airlines employees are being offered a one-time choice of either opting out of the company's $6 billion defined benefit plan and into the 401(k) plan, or remaining in the defined benefit plan. William F. Quinn, president of AMR Investment Services Inc., Fort Worth, which manages the plans, said about 25% of the company's non-union employees have elected to switch to the revamped 401(k) plan. Newly hired non-union workers also are being given the same choice. He said, the cutoff date for employees to select one plan or the other was Sept. 1, but that has been extended through 2001.
The defined benefit plan will remain in place and funded for employees who choose it. For those opting out, accruals for credited service will be frozen but will remain subject to salary growth.
American will add the company match to help its competitive position in a tight employment market. "It's really a recruiting tool more than anything," said Mr. Quinn.
Extended window
Originally, American officials were leaning toward putting all new hires in the 401(k) plan as of Jan. 1. They extended the window, however, to gather more information on employee selection patterns, said Mark Johnson, managing director-benefits compliance and pensions at American Airlines Inc. New employees will have access only to the 401(k) plan starting in 2002, he said.
While the changes affect only non-union employees, American is willing to discuss similar changes with its unionized employees during contract negotiations, he added.
Changes in American's 401(k) plan were part of an overall restructuring, in which the number of investment options more than doubled to 26 from 11 and moved to daily valuation from monthly. American also began offering non-American AAdvantage Fund choices for the first time. (Pensions & Investments, April 3).
American added outside funds from Janus Capital Corp., Dreyfus, Fidelity Investments, T. Rowe Price Associates Inc. and Berger Associates Inc.
AAdvantage funds added
At the same time, four new American AAdvantage funds were added, including an emerging markets fund, international equity index fund, small-cap index fund and a large-cap growth fund. American uses a manager-of-managers approach in its funds. J.P. Morgan Investment Management Inc. and Goldman, Sachs Asset Management were hired to split the large-cap growth fund investments; Boston Co. Asset Management Inc. and Morgan Stanley Dean Witter Investment Management will manage the emerging markets fund; Merrill Lynch Asset Management Group will manage the international equity index fund; and AMR Investment Services will manage a new domestic bond fund internally.
American was one of a relatively small group of large employers that didn't have a matching provision in its 401(k) plan. Most large employers have long since started providing a match, said Joe Hessenthaler, principal at Towers Perrin, Philadelphia. Between 85% and 90% of the large employers in the Towers Perrin database provide a company match, and 80% of those provide a 50% or greater match on the first 6% of employee contributions, said Mr. Hessenthaler.
