Company's restructuring leads to soup-to-nuts review
Managing two 401(k) plans that serve participants in its multiple business units, officials at News Corp., New York, decided to go on a defined contribution diet to trim the fat and build muscle.
Trimming the fat meant a comprehensive restructuring to reduce costs for the two plans with combined assets of $1.8 billion. News Corp. negotiated lower fees for some existing options, replaced other options and switched, where possible, to collective investment trusts.
Building muscle meant creating identical menus for both plans, removing redundancies, simplifying choices and eliminating revenue sharing.
It will be awhile before News Corp. can do a complete physical exam of its plan design and investment modifications because most changes took effect last month. Still, early signs look promising for the 401(k) plan that covers participants at Dow Jones & Co. and for the 401(k) plan that covers several other News Corp. businesses, including HarperCollins Publishers LLC. “The old investment lineups were good lineups, but we felt there was a context to improve,” said Marco Diaz, senior vice president and head of global benefits for News Corp. “We reviewed pricing. We wanted to take away the obfuscation of revenue sharing. We wanted to determine the right mix of active and passive investments.”
The various changes at the two plans will save the 12,308 participants an estimated $2.24 million in annual record-keeping and investment fees, he said. The review of the two plans began soon after the latest iteration of News Corp. became an independent company in July 2013.
Old and new
The old News Corp. had owned the publishing companies as well as a television network, film and cable TV empire. It split into separate companies — the publishing company, which took the parent's name, and Twenty-First Century Fox Inc., New York. (Twenty-First Century Fox has two 401(k) plans that are not affected by the changes at News Corp.) After the split, News Corp. proceeded systematically to review and restructure its two 401(k) plans, Mr. Diaz said. It first made the decision to hire a record keeper. Fidelity Investments, Boston, had been the record keeper for both plans.
News Corp. issued an RFP and interviewed six candidates during the first seven months of 2014, deciding in the third quarter to stay with Fidelity, Mr. Diaz said. “Fidelity was very competitive on pricing and very flexible and cooperative on fund selection,” said Mark Wetzel, president of Fiduciary Investment Advisors LLC, Windsor, Conn., the investment consultant to the plans.
The next step was to eliminate revenue sharing. Under the revenue-sharing model, the record-keeping cost was $96 per participant for one plan and $64 per participant for the other plan, Mr. Diaz said. Effective Jan. 1, 2015, the cost was reduced to $36 per participant for each plan, charged as a per head fee deducted from each participant's account.
The revenue-sharing model “had an element of not being clear,” said Mr. Diaz. “It is very difficult for an individual investor to understand exactly how much of their assets are going towards record-keeping costs.”
Using a per-head fee, he added, “enabled participants to clearly see what was coming out of their account.”
During the fourth quarter of 2014 and the first quarter of 2015, company officials reviewed investment lineups for both plans. Their strategy focused on simplification and cost reduction. The News Corp. investment committee decided to retain both 401(k) plans while offering identical menus.
This “sets the stage” for possibly combining of the two plans in the future, although there is no mandate or timetable to do so, Mr. Diaz said.
“There are minor design differences between the plans that we would want to review against each other as well as all-around best practices in plan design,” Mr. Diaz said. Rather than wait to resolve these issues, News Corp. made the various changes to accelerate the “savings opportunity” for participants, he added.
As a result of the committee's review, both 401(k) plans offer 10 investment options; one previous plan has 12 options, while the other had 15 options. The harmonized investment lineups took effect July 10.
“It can be hard to convince investment committees to shrink the lineup because they fear it will be viewed (by participants) as a takeaway,” said Mr. Wetzel. “They were willing to do this.”
The lineup contains a target-date fund series, one bond index fund, six domestic and international equity funds, a real estate investment trust index fund and a stable value fund.
In addition, participants may participate in a self-directed brokerage account, which previously had been available to only one of the 401(k) plans.
In the new lineup, the two plans reduced some fees with new options. For example, they now have a Fidelity Growth Company collective investment trust with an expense ratio of 43 basis points, which replaced a Fidelity Growth Company K shares mutual fund with an expense ratio of 71 basis points.
News Corp. added an American Funds target-date series from Capital Group with an expense ratio ranging from 36 basis points to 47 basis points vs. the former Fidelity target-date series that charged 44 basis points to 66 basis points. American Funds “had the most compelling case” for cost and glidepath construction, Mr. Diaz said.
Sometimes, the savings were small. For example, a new Vanguard Total International Stock Index Fund charges 10 basis points vs. the old Fidelity Spartan International Index Fund, which charged 12 basis points.
Although both plans had offered a money market fund managed by Fidelity and one plan offered a stable value fund managed by Fidelity, News Corp. dropped the former and kept the latter for each plan. “At the end of the day, we didn't need both,” Mr. Diaz said. News Corp. used a combination of e-mail and regular mail to educate participants about the changes as well as a series of webinars to explain the decision for the restructured plan menus. The revised record-keeping and investment menu policies elicited relatively few comments from participants, Mr. Diaz said.
This article originally appeared in the August 10, 2015 print issue as, "News Corp. cuts fees, simplifies plans' options".