NEW YORK - RJR Nabisco Inc. implemented a new retirement savings program, improving availability of benefits information, providing more timely valuation of funds and increasing employee account management capabilities for its $2.5 billion defined contribution plans.
In the process, the company had to integrate two very different corporate cultures within a single program. The defined contribution plans of Nabisco foods and R.J. Reynolds tobacco were consolidated two years ago, but participants in each division were treated differently.
Each division had its own human resources department, which maintained separate, internally managed voice-response systems. The company's record keeper at the time, Cooper's & Lybrand, New York, used different benefit forms and communication materials for each division and different systems for handling employee data.
The old plans were valued on a monthly basis, making access to up-to-date account information impossible, said Gerald I. Angowitz, vice president of human resources, deputy head HR and administration. "Employees were complaining about stale account data and the long lag time for administrative functions. Processing loan or withdrawal requests, for example, used to take as long as eight to 10 weeks."
As internal teams of human resources, employee benefits and treasury staff began to review the plan and options for the future, they realized daily valuation was required to upgrade information delivery to employees. Many functions performed separately and differently for Nabisco and for RJR employees also would be better standardized and combined, they found.
RJR Nabisco took a careful look at bundling services, said Mr. Angowitz, but in the end, the internal task force elected to remain with an unbundled approach.
"We looked at all the bundled possibilities, but we decided not to limit the investment choices of our pension/investment internal staff to a single mutual fund family. We wanted them to have the full range of choices open to them, and that meant staying out of a bundled approach," said Mr. Angowitz.
Once the company determined it would pursue an unbundled approach to plan service, the search for a new record keeper was limited to employee benefit providers that also could provide full plan consulting services. Kwasha Lipton, Fort Lee, N.J., was selected to provide daily valued, full record keeping and administrative services, including an automated voice-response system.
RJR Nabisco had been providing internally a total benefits phone system, integrating all benefits programs, including defined contribution, defined benefit, health and welfare and flex plan information. All components of the tobacco division voice response system were moved to Kwasha Lipton. For the foods division, Nabisco staff continue to maintain a voice-response system to handle defined benefit, health and welfare benefits internally. Food division employees still call the single Kwasha Lipton toll-free number, but are transferred automatically into the Nabisco system if they request information about anything beyond the defined contribution plan.
The new daily valuation system will greatly improve the speed of employee transactions, said Mr. Angowitz. Loan processing now can be completed within 10 days.
Improvement of plan services was the driving factor behind the changes, not cost considerations, Mr. Angowitz said. The changes were "cost neutral" because the plan restructured its relationship with its trustee Wachovia Corp., Winston-Salem, N.C., and selected less expensive investment options.
The plan moved to nine investment options from seven, all passively managed.
The new funds include a U.S. equity index fund, which typically allocates 70% of assets to the Institutional Index and 30% to the Index Trust Extended Market Portfolio mutual funds managed by the Vanguard Group of Investment Cos., Valley Forge, Pa.; an international equity index fund, which is a 50-50 split between Vanguard's International Equity Index-Europe and the International Equity Index-Pacific funds; and an interest income fund, with guaranteed investment contracts managed by Fidelity Institutional Retirement Services, Boston, and indexed fixed-income assets managed by Wells Fargo Bank, San Francisco.
RJR Nabisco moved to passive management after watching their employees try to "chase the returns of our two active equity managers, a growth and value manager. Employees would move money over into the value fund at the peak of the cycle and move over to growth at the peak of that cycle. They were getting whipsawed," said Ed Robertiello, RJR's director of pension and benefit investments.
Mr. Robertiello said the company was looking for a way to help employees feel comfortable about moving into equities by choosing a less volatile, and expensive, form of management through index funds. The equity option combines Vanguard's Institutional and Extended Market Index funds to replicate the Wilshire 5000.
"This way, we cover the entire market, from small to large cap and from value to growth," added Mr. Robertiello.
RJR Nabisco staff direct the asset allocation of three balanced funds - with conservative, moderate and aggressive risk profiles - which invest proportionally in the other three options.
The conservative balanced fund allocates 70% to the interest income fund and 30% to the U.S. stock index fund. The moderate balanced fund splits its allocations evenly between the interest income and stock fund. The aggressive balanced fund invests 70% of its assets in the index stock fund and 30% in the bond index fund.
With daily valuation, RJR Nabisco staff knew they could easily rebalance the funds monthly, said Mr. Angowitz.
"We were already explaining the features of each of the passive funds in our line-up to employees, and it seemed easiest to use those same components to build our own balanced funds.
"We could have bought lifestyle funds off-the-shelf, but then there would be another set of separate funds to explain to participants. We had all the makings of balanced funds already in the program and could achieve the same risk-reward parameters with our own mix," said Mr. Angowitz.
Three funds from the old plan are part of the new line-up: a real estate option, managed by Equitable Real Estate, New York; an employee stock option plan; and a company common stock fund.
A general stock fund and a growth stock fund, both managed by Vanguard, were replaced by the new U.S. stock fund.
Dropped from the plan was a government securities fund, managed by Dreyfus Corp., New York.
The new RJR Nabisco plan was fully implemented March 1, after an intensive communications campaign, provided with Kwasha Lipton's assistance. RJR Nabisco handles investment education internally.
Since the plan's investment options were fairly well-diversified prior to the 1994 change, Mr. Angowitz said he doesn't anticipate having to re-educate plan participants about fully using investment options.
Harry Gross, a principal at Kwasha Lipton, said the Participant Service Center servicing RJR Nabisco employees received 32,000 calls in the first month of the new plan's operation. In that time, about 3,500 employees have used the services of a live representative.
Mr. Gross said it is too soon to analyze whether employees are allocating their account assets to the new investment options.