Eli Lilly & Co. added a real assets option, more emerging markets exposure in its international equity options and external investment advice in a face-lift for its $4.5 billion 401(k) plan.
In addition to real assets, Lilly officials also added a fixed-income option and replaced seven equity options with four new ones.
The changes in the Lilly Employee Savings Plan, the Indianapolis-based pharmaceutical company's 401(k) plan for its U.S. employees, were effective July 1. The investment options were cut to 10 from 11.
The new options are:
- two active equity options — one U.S. all-cap and one international equity — run in a manager-of-managers format;
- two passive equity options, U.S. all-cap and MSCI ACWI ex-U.S.;
- the real assets option; and
- the fixed-income account, also run as a manager of managers.
Those replace the following investment options:
- three active domestic equity options: large-cap growth, large-cap value and small-cap core;
- two domestic index funds, an S&P 500 and Russell 2000; and
- two international developed markets equity options, one active, one passive.
Four options were retained: a target-date fund suite; stable value; a self-directed mutual fund window; and Lilly company stock.
Bryan P. Dunnivant, Lilly's investment officer, global treasury, pension and benefits, would not name the new managers for the options, citing agreements with the firms.
Investment advice provided by Aon Hewitt Financial Advisors LLC, Charlotte, N.C., and Financial Engines Inc., Sunnyvale, Calif., was added “to provide participants with more resources, more help with their 401(k) investment decisions,” Mr. Dunnivant said.
Aon Hewitt also was retained as the plan's record keeper.
The June 28-July 1 transition went “perfectly,” Mr. Dunnivant said. “We were monitoring closely all weekend, and everything turned out great. It's always a big event when you do something like this; you always hold your breath. But it went very, very well.”
The investment advice is being offered through a company website with two services. The first option is a suite of tools that will take into account a participant's age, fund balance and overall savings inside and outside the plan in providing scenario analysis for different retirement ages along with projected plan and Social Security benefits. The second offers a fee-based professionally managed account service customized for each participant, with asset allocations periodically adjusted and balanced, Mr. Dunnivant said.
Even with the advanced education level of Lilly participants, Mr. Dunnivant said there was a need to provide advice. “In my mind, it takes three things (for participants to manage investments) — a little knowledge, it takes some time and an inclination to do it,” he said. “If you don't have all three, it makes sense to get some help.”
3 underlying investments
The real assets option will have three underlying investments: passive funds in Treasury inflation-protected securities benchmarked to the Barclays Capital U.S. TIPS index; real estate investment trusts benchmarked to the FTSE EPRA/NAREIT Developed Markets Real Estate index; and commodities benchmarked to the Dow Jones-UBS Commodity index. The weightings of each passive portion can be changed, making the overall portfolio actively managed and what Mr. Dunnivant called “a really great diversifier.”
The equity option changes were made because plan officials wanted to broaden the investment parameters for equities to be more nimble and, in the case of the international funds, to take advantage of the return potential of emerging markets.
The new fixed-income option will be a total return, core-plus fund.
The new active manager-of-managers equity and fixed-income options provide “additional forms of diversification and risk mitigation,” Mr. Dunnivant said. “We believe that by moving to fewer equity funds with broader market reach, we're adding diversification to asset classes and also providing a way to get improved returns.”
Each manager of managers has discretion to change the underlying managers without veto power from Lilly, although Mr. Dunnivant said plan officials will be consulted before the moves are made. “That's why we were careful with the selection process,” he said.
Plan officials began the transition to the new managers six months ago; Mr. Dunnivant said he thought it had been around eight years since the plan had been reviewed.
“Our manager search and selection process was broad based and very robust,” he said. “We identified a number of very qualified and capable managers for each of the different of mandates and the final decision was tough given the strength of the candidate pool.”
Participants in the old investment options were given a four-day window, from June 28 to July 1, to move assets to the new options from those being eliminated. Those who take no action and were in options being eliminated will be mapped to “substantially similar” new options, Mr. Dunnivant said. There were no blackout dates.
“We're proud of what we've done with the plan,” Mr. Dunnivant said. “The driver was a part of Lilly's commitment to better benefits and competitive benefit plans for our employees... We made changes in the fund lineup to streamline and simplify.”
This article originally appeared in the July 8, 2013 print issue as, "Eli Lilly 401(k) gets real assets option, tweaks to equities".