Fidelity Investments introduced the ESSENTIAL plan, a new bundled 401(k) service for very small companies, with 100 or fewer employees.
Tapping into the small plan market, which represents 1.8 million companies in the United States, Fidelity will provide a basic, inexpensive service - investment management with a choice of 27 no-load Fidelity mutual funds and the Magellan Fund, record keeping, trust, and employee education and communications. Fidelity's 24-hour toll-free, voice-response system also will be available for participant inquiries.
Kevin D. Moran, senior vice president of Fidelity's small to mid-size 401(k) unit, said test marketing revealed small companies "care much less about face-to-face meetings than larger plans. They want easy-to-understand, easily distributed educational and communications 401(k) materials." Because of these findings, Fidelity will not provide educators or conduct employee meetings for clients. "All employee education will be handled through the use of video and print media," said Mr. Moran.
The ESSENTIAL plan is Fidelity's first stab at servicing very small companies. Since 1991, Fidelity has targeted medium to small plans, with 1,000 or fewer employees, with various bundled services, amassing $3.8 billion under management by the end of 1993.
The price for the service is a flat $5,000 per year, with a $1,500 start-up fee and slightly higher annual fees if Fidelity handles participant loan administration. Mr. Moran said four clients already have subscribed to the service.
Cummins taps Kwasha
Cummins Engine Co. Inc., Columbus, Ind., will outsource much of the administration for its $1 billion defined benefit plan to Kwasha Lipton, Fort Lee, N.J., the record keeper for the company's $40 million defined contribution plans.
Beginning May 1, data on the defined benefit plan assets of all 20,000 defined benefit plan participants will be added to Kwasha's defined contribution plan data base. Employees will be able to access information on both types of retirement plans through a toll-free voice-response system. Carol Smalley, Cummins' pension investments director, said employees will "be able to get a complete picture of their retirement assets by accessing a single system."
Cummins will continue to offer internally one-on-one counseling for older employees close to retirement, but other administrative functions, such as fund distribution elections, modeling functions, and address and beneficiary changes will be outsourced to Kwasha Lipton. Kwasha will act as a conduit, passing on necessary information to the trustee and updating the central employee data base.
Easy access to telephone operators through the voice-response system is central to the outsourced administration, said Ms. Smalley, because retiring employees will have many complicated questions regarding their defined benefit distribution options, compared to the lump-sum distribution common for defined contribution plan accounts upon retirement. The automated voice-response system should be sufficient for most other employees, with less complex inquiries, she said.
Vanguard enhances software
The Vanguard Group of Investment Cos. Inc., Valley Forge, Pa., later this year will offer an enhanced version of its pc-based interactive software program, the Vanguard Retirement Planner, designed for use by defined contribution plan and retail mutual fund clients.
The new version of the software adds the Portfolio Planner module, an asset allocation modeling program. The additional capability will help participants determine their risk tolerance and select appropriate investment options within their 401(k) plans to meet their retirement goals. The diskette program also contains historical performance information on financial markets and Vanguard mutual funds. The new program component augments the existing Savings Planner module, which helps participants identify and meet retirement savings goals.
Vanguard also is expanding the distribution of its quarterly newsletter, MoneyWhys, to defined contribution plan participants of large, full-service clients, said John Werth, a Vanguard spokesman.
The inaugural edition was published in autumn last year for a select test group of plan sponsors.
Morningstar introduces service
Morningstar Inc., Chicago, introduced Morningstar OnDemand, which allows investors to request single reports from a series of 1,240 mutual fund and 316 closed-end fund analyses.
The reports evaluate each fund, rate the fund according to risk and volatility, discuss portfolio holdings, investment style and fund operations, and provide performance data on a historical basis.
At $5 per report, rather than hundreds of dollars for the series, both sponsors and participants in defined contribution plans could use the service for quick updates on mutual funds offered within their savings plans or for objective analysis of possible new options. The reports are delivered by facsimile or first-class mail.
Morningstar also recently introduced Morningstar OnFloppy, providing analysis and performance statistics on more than 3,400 mutual funds, for use on pc-based systems. The basic diskette program has graphics capabilities and performance comparison abilities, allowing the user to compare fund performance against 25 benchmarks. An add-on tool, the Portfolio Developer, calculates 15 variables to assess portfolio performance under varying circumstances.
The basic price is $45, with quarterly updates priced at $95 per year and monthly updates at $185 per year. Defined contribution plan sponsors might find the pc-based system a relatively inexpensive and easy way to track and model mutual fund choices within their plan's offerings.