SCHAUMBURG, Ill.-Motorola Inc. is converting its traditional defined benefit pension plan to a more-flexible hybrid plan.

The new pension equity plan will offer faster benefit accruals, benefit portability and a benefit formula that is easier to understand-features Motorola executives say today's employees want.

Motorola also is sweetening its 401(k) plan by improving its matching contribution, immediately vesting participants in matching contributions and adding five investment options to the four it already offers.

In addition, the Schaumburg, Ill.-based high-tech company will give employees the opportunity to purchase Motorola stock at a 15% discount.

The changes are a response to a more mobile workforce and will better enable Motorola to compete for talent in the high-tech industry, company benefit executives say.

"Our objective was to design a package that could help to attract and retain employees," said Rick Dorazil, Motorola's vp and director of global rewards.

With its new pension equity plan, or PEP, Motorola joins the hundreds of employers that, in recent years, have converted old-style final-average-pay plans to hybrids. Hybrids, such as PEPs and cash balance plans, are so named because they are designed to combine the best features of defined benefit and defined contribution plans.

But, in several ways, Motorola's move to a hybrid plan sets the company apart from many other employers that have made similar moves.

Employers often require at least some current employees to move into the new plan. Such requirements often prompt complaints from older employees, who say changing plans can cause them to lose out on benefits, such as early retirement subsidies, for which they were nearing eligibility.

By contrast, all Motorola employees who began employment prior to July 1, 1999, will have the choice to either enroll in the PEP or remain in the current traditional plan. The new plan, which goes into effect July 1, 2000, will cover employees who begin on or after July 1, 1999.

In addition, when companies change the design of their pension plans, they often give employees short notice-sometimes as little as two months. That lack of notice can force an employee to make a rushed decision as to which plan makes most sense for him or her and, thus, can significantly affect the amount of benefits that will be received.

By contrast, each Motorola employee will have until April 1, 2000-about nine months after the company announced the benefit changes-to decide which plan to choose.

During that time, Motorola, along with Arthur Andersen L.L.P. in Chicago, will begin a comprehensive pension education program, including seminars and workshops, to help employees better understand the old and new plans.

In addition, Motorola is providing personalized statements with benefit projections under both plans and an Internet-based pension modeling program that will enable employees to project benefits under various assumptions.

"Hopefully, employees will make an informed decision. That is so critical," Mr. Dorazil said.

Compared to Motorola's traditional "backloaded" plan, the PEP offers more rapid benefit accruals during an employee's first years of employment, resulting in larger benefits for shorter-service employees and lower benefits than the current plan offers for employees who spend most of their careers with Motorola.

The traditional plan was designed in an era when there was a much greater expectation that the average employee would spend most, if not all, of his or her career at the company.

But in today's environment of increased job mobility, a pension plan under which benefit values begin to build only after many years of service is not very appealing to many employees, Motorola executives say.

"In the high-tech industry, individuals are so marketable, they are not likely to stay with one company for their entire career," said Sheila Forsberg, Motorola's director of global benefits strategy. With employees likely to move on after a few years, they are more interested in plans with faster benefit accruals, she said.

Michael Johnston, a consultant with Lincolnshire, Ill.-based Hewitt Associates L.L.C., which helped Motorola design the PEP, said: "With a PEP plan, you have large front-end benefit accruals. That is something employees see immediately."

The increasingly mobile workforce also led to another pension plan design change. While the traditional plan allows an employee to take benefits only as an annuity and no earlier than age 55, the PEP allows a terminating employee to take benefits at any age and as a lump sum.

That will allow a job-hopper to take his or her benefits along and, for example, roll the benefits into an individual retirement account or, if permitted, into a new employer's pension plan.

"Portability is something employees have been asking for," Ms. Forsberg said.

The PEP also features an easy-to-understand benefit formula. Under the plan, an employee is credited with a percentage each year, with that percentage based on years of service. For example, each year of service for the first five years of employment receives a 4% credit, while the annual credit for between five and 10 years of service is 5%, and a 6% annual credit is provided for 10 to 15 years of service. A 7% annual credit is provided for more than 15 years of service.

To determine an employee's benefit, the credits would be added up and multiplied by his or her final average pay. The result would be the employee's lump-sum benefit. An employee will have the option of converting the lump sum into an annuity.

Because the PEP benefit formula is easier to understand than the complicated formula used in the traditional plan, employees will have more appreciation for the pension plan, Ms. Forsberg said.

Apart from the defined benefit plan changes, Motorola is improving its 401(k) plan. It will match employees' salary deferrals on the first 3% of pay and will match 50% of deferrals on the next 3% of pay. Currently, Motorola matches 100% of salary deferrals on the first 1% of pay and 50% on the next 2% of pay.

"We wanted to make the plan more robust" to make it more competitive, Mr. Dorazil said.

In addition, employees in the 401(k) plan, which has about $6 billion in assets, will get five new investment options. These options will include an international equity fund, a small-company equity fund, a midsize company equity fund, a long-term bond fund and a balanced fund that invests more heavily in equities compared with an existing balanced fund. The existing balanced fund also will continue to be offered to employees as well as a large cap fund, a Motorola stock fund and a short-term bond fund.

"Participants have asked for a wider range of investment options," Ms. Forsberg said.

Motorola executives say the changes, taken together, are intended to be cost-neutral.