The Harmonized Savings Plan at BP Amoco
Posted: 5 Jul 2006
Date Written: October 26, 2000
SUBJECT AREAS: Capital markets, Efficient markets, Financial planning, Asset Allocation, Asset Management, Investments, Investment Management, Mutual funds, Pension funds, Performance measurement, Risk Management, Behavioral Finance, Defined-contribution pension fund design
CASE SETTINGS: Chicago, IL; Mutual fund; Petroleum industry; 1999
This case provides a vehicle to discuss the design of corporate DC pension plans, retirement savings decisions, and retail investing. This case examines the decision of BP Amoco to redesign its defined contribution pension plan for US employees after the merger of BP and Amoco in 1998. As part of the merger process, management must decide how to best accomplish the integration (or "harmonization") of the pre-merger defined-contribution (DC) pension plans of each company, which are very different in the nature and number of their investment options. The investment options in the BP plan include a large number of actively managed mutual funds, plus company stock. By contrast, the investment options Amoco plan include a few index funds specifically tailored by Amoco to reduce expense ratios as much as possible, and company stock. The success of this integration is viewed as critical for employee morale in the face of the merger. Management is also aware of the implications of DC plan design for the long-term welfare of employees, in light of the increasing reliance of employees on this type of plan to finance retirement.
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