NEW YORK - AT&T Corp. is revamping its $10 billion defined contribution plan for management employees.
The new structure includes daily valuation, broadened investment options and a greater focus on employees' responsibility for retirement savings.
Among the major changes:
Three new specially constructed AT&T Custom Funds will have multiple managers, including some new to AT&T. AT&T Investment Management Co. selected and will monitor the manager lineup and fund allocations.
Three new risk-diversified investment strategies will be set up like life cycle funds, with Brinson Partners Inc., Chicago, serving as manager of managers. Brinson determines the asset allocation and buys investment units from the Custom Funds' manager lineup to compose the portfolios.
Fidelity Institutional Retirement Services Co., Boston, will provide record-keeping services and three mutual funds, as well as management of part of the AT&T Custom Funds.
AT&T now will share record-keeping costs with employees, with an annual $30 per participant maximum. Employees continue to pay investment management fees.
Transition to the new structure will begin Sept. 1; the changes are expected to be in place by early December.
AT&T officials hope the union defined contribution plans - which have more than $3 billion in assets - will undergo a similar revamp next year.
James A. Heller, vice president-savings plans and other post-employment benefits at AT&T Investment Management Co., Berkeley Heights, N.J., said contract negotiations will begin early next year with the unions representing AT&T's employees, and company officials hope a similar reorganization can begin next summer. The union plans are similar to the old structure of the management defined contribution plan, said Mr. Heller, so the new management employees' plan design could be fairly easily incorporated for hourly workers.
Unlike many restructurings, AT&T officials had no desire to change the money managers that ran the old plan's four investment options. With 87% participation and an employer match of 66.66% on every employee contribution up to 6% of salary, employees already were happy with plan features.
"After 25 years, we had captured a lot of good things in terms of investment returns and liked our managers. We wanted to preserve the best things about the old plan, primarily the investment styles which have been successful. Ours was a unique situation; The primary driver behind our new plan design was a need to move to daily valuation and to broaden choices, but we had no need or desire to terminate our existing investment managers," said Mr. Heller.
Like most large defined contribution plans, AT&T decided to maintain an unbundled service approach.
Employee focus groups, letters and intracompany e-mail messages made it clear to the company that participants wanted wider investment choices and name-brand mutual funds in their savings plan, which accepts both pre- and post-tax employee contributions. AT&T pumped up the plan to include four broad categories of investment options.
An AT&T common stock fund was carried over from the old plan. A second investment category added three standard mutual funds from Fidelity: the Retirement Money Market Portfolio; the Equity Income Fund; and the Magellan Fund.
A third investment category added three AT&T Custom Funds - the U.S. equity, the U.S. fixed-income and the international securities funds. AT&T added several new managers to invest portions of the combination active-passive portfolios, but largely redeployed existing managers' expertise in new ways for the custom fund lineup.
The U.S. equity fund will be co-managed by Bankers Trust Co., New York; Dodge & Cox, San Francisco; Miller Anderson & Sherrerd, West Conshohocken, Pa.; and Wells Fargo Nikko Investment Advisors, San Francisco.
The U.S. fixed-income portfolio will be managed by Bankers Trust; Fidelity Institutional; Brown Brothers Harriman & Co., New York; and Standish, Ayer & Wood Inc., Boston.
The international securities portfolio, a combination of equities and bonds, will be managed by Wells Fargo Nikko; J.P. Morgan Investment Management Inc., New York; and Capital Guardian Trust Co., Los Angeles.
The fourth investment category includes a series of three life cycle funds, which AT&T refers to as the conservative, moderate and aggressive investment strategies. Brinson will determine the asset allocation for each strategy. Mr. Heller emphasized Brinson will have the freedom to buy investment units in each of the manager's portfolios in whatever proportions suit the asset allocation funds and will not mirror the investment allocations within the custom funds.
Mr. Heller said this technique will allow Brinson Partners to emphasize the different investment styles of the various custom fund managers in managing the lifestyle funds.
"We were aiming to provide investment options to please everyone in the plan with the new program," said Mr. Heller. "For participants comfortable with making their own investment allocations and who want name-brand mutual funds, we've provided the means to meet those objectives. For employees who simply aren't comfortable with making the asset allocation themselves and want a professional making these decisions, the investment strategy funds should be a good fit. Basically, the diversification potential is very high with the lineup we've come up with."
AT&T's previous defined contribution investment options included the AT&T common stock fund; a GIC fund managed by Fidelity and Bankers Trust; a U.S. diversified equity fund managed by Bankers Trust, Miller Anderson & Sherrerd and Dodge and Cox; a socially responsible, South Africa-free domestic equity fund managed by Miller Anderson & Sherrerd; and a government obligation bond fund managed by Brown Brothers Harriman.
Fidelity Institutional was selected to provide daily valued record-keeping services for the plan, which has 91,000 active participants and 130,000 eligible participants and retirees. Fidelity will provide an automated voice-response system with access to operators. It also will provide quarterly benefit statements to employees; daily account balances are available via the voice response system.
Record keeping has been handled internally by American Transtech, a Jacksonville, Fla., AT&T subsidiary. The company will continue to administer the company's hourly employees' defined contribution plans and other company administrative tasks. The plan had been valued on a monthly basis.
AT&T's employees will be allowed unlimited freedom in directing the investment of existing account balances, up from four times per year under the old system. Allocation of new contributions can be redirected once per month, said Steve Fordham, AT&T's savings plan administrator, partly for administrative reasons, because most management employees are paid monthly. Employees always have had complete freedom in the direction of both pre- and post-tax contributions.
The move to allow unlimited fund transfer capability represents a significant change in AT&T corporate culture, said Mr. Fordham.
"We've stopped trying to protect our employees' investments. We are putting the responsibility for investment in the hands of our employees, and we are doing it fully, giving them complete freedom to plan their own retirement investment plan," he said.
AT&T mounted an intensive educational campaign through spring and summer to encouragement re-enrollment in the plan and to help employees redirect their assets into new options. Employees received, and continue to receive, daily e-mail messages about their new plan options, said Mr. Fordham.
The quarterly plan newsletter also included articles highlighting the new plan, and benefits statements included inserts on the advantages of the new plan.
Mr. Heller said the company is seeing the results of its educational efforts in the form of employee asset allocations to the new options.
"It's been really encouraging. Employees are directing assets into the new mutual funds, into the custom funds and into the investment strategy portfolios. We're very pleased with the full use employees seem to be making of their choices," Mr. Heller said.