A pension plan for today.

• Author: Angowitz, Gerald I.
• Position: RJR Nabisco pension plan - Employee Benefits

While the profile of today's work force goes through some dramatic changes, RJR Nabisco tries to stay one step ahead by designing its pension plan for all people.

Eighteen months ago, RJR Nabisco began a review of its pension programs. The company wondered if its plans were properly positioned to attract and retain the right employees in the work force of the 1990s and beyond. RJRN concluded that it needed a new type of pension plan to meet the benefit needs of an increasingly diverse work force. That new plan, named the Pension Equity Plan, was introduced to RJRN employees on January 1, 1993.

A TWO-TIERED WORK FORCE

Pension plan design has generally followed work force demographics. Prior to the 1980s, it encouraged and rewarded career employment through final average defined benefit plans that typically provided retirement income at age 65 equal to a percentage of an employee's average compensation over his last five years of service. By the mid-1980s, plan designs adjusted to younger and more mobile workers through cash balance plans that made annual additions (for example, 5 percent of this year's pay) to individual accounts, which grew at an interest credit rate stated in the pension plan document.

Today, the demographics of the work force are changing again. The eldest members of the baby boom generation are now 47 years old. Over the next 10 years, as this generation passes age 50, their thoughts are sure to turn to retirement security. The boomers won't be nearly as mobile in their 50s as they were in their 30s and 40s. However, the baby boomers will still be needed in the work force, because there's a "baby bust" generation right behind them, The baby busters will be young and, because there are so few of them, they'll be in a seller's market, perhaps giving them the ability to be even more mobile than the preceding generation.

In short, the United States is moving toward a fully employed, two-tiered work force. The emerging work force won't simply be older--it will also be very different. And with this bifurcated work force, America will need pension designs that are fair and equitable to all groups: short- and long-service employees, early- and mid-career hires, men and women who leave the workplace and return a few years later, high- and low-paid workers, and the young and old.

Traditional defined benefit plans provide very little buildup of value in the early years, while defined contribution or cash balance plans provide much less benefit buildup in the later years. RJRN knew it needed a design with the best features of both types of plans.

DOWN TO BUSINESS

RJRN has two domestic operating companies: R.J. Reynolds Tobacco and the Nabisco Foods Group. Until now, the two units had very different existing pension programs. The Tobacco Company had a traditional final average defined benefit plan, under which early retirement eligibility was age 55 with 20 years of service and unreduced benefits were available at age 55 with 30 years. An unusually high percentage of employees qualified for the latter condition. Tobacco primarily has a career work force, but it's much older than average, and regular retirements over the next decade will probably produce fundamental changes in its demographics.

At the other end of the pension spectrum, Nabisco had a cash balance plan for salaried workers, designed for a mobile employee base...