The employee demographics at BP America Inc. are probably not much different than other petroleum companies, says Rick Dorazil, BP's vp-total reward, Western Hemisphere.

“We are not unusual in the gas and oil environment. A significant portion of our population is eligible to retire,” he said.

And that demographic fact could pose a big problem. “We have critical talent,” he said, referring to the drillers, engineers, geologists and others who work for the Houston-based oil giant.

One challenge for BP, Mr. Dorazil said, was how to retain a portion of that veteran, skilled staff while newer, younger employees that eventually will replace the long-service employees are developing their skills.

That challenge was exacerbated by the pension plan design of several companies, including Amoco Corp., Atlantic Richfield Co. and Castrol Ltd., that BP acquired over the years. Those organizations sponsor final average pay pension plans that are interest-rate sensitive when calculating lump-sum benefits, so the lower the interest rate, the higher the lump-sum amount.

The low interest rates were the result of a deliberate policy by federal regulators to jump-start the nation's economy when the economy dramatically weakened in 2008.

The 30-year Treasury bond rate dropped to a record low of 2.87% in December 2008, Mr. Dorazil said. And at that interest rate level, “long-service employees were seeing huge increases in their lump-sum benefits,” he said.

The volatility of interest rates and what they could do to the lump-sum pension benefit value triggered worries among older, longer-service employees. Many were concerned that, as interest rates fell while the economy was sinking, federal regulators would almost certainly boost interest rates to hold down inflation when the economy improved, thus reducing lump-sum values.

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Concern began to build. More employees were requesting estimates of their lump-sum benefits, Mr. Dorazil said. And if those employees requesting benefit estimates retired, the reservoir of experienced employees with critical skills that BP wanted to keep would be rapidly depleted.

“We wanted to keep the critical talent,” he said. “We didn't want the pension plan to become a reason to leave.”

At the request of BP senior management, Mr. Dorazil was given the challenge in early 2011 to “de-risk” the pension plan design so that it would not provide a reason for an employee to prematurely leave BP. Working with Cliff York, BP's director of retirement plans and members of BP's retirement department, Mr. Dorazil and the team developed a proposal that they presented to BP senior management.

It was approved.

Under the approach, the interest rate used to value the lump-sum benefit would be the lesser of 4.8% or the rate based on methodologies laid down by a 2006 pension funding reform law.

That new policy—effective July 2011—”was like putting a hot pin in a balloon. It immediately took out the anxiety level,” Mr. Dorazil said.

In fact, the rate of retirement for employees affected by the interest rate issue has dropped since the change was announced a year ago, even though interest rates have continued to fall.

“We clearly met the goal of taking the pension plan/lump-sum issue off the table as a reason to leave,” Mr. Dorazil said.