MOUNTAIN VIEW, Calif. - When Silicon Graphics Inc. decided to introduce a company match to its 7-year-old 401(k) plan, employees gave the announcement a standing ovation.
The corporate culture at the computer manufacturer actively encourages open, lively discussion. It was natural, therefore, that company executives would use one of the quarterly "all hands" meetings of most of the company's 4,300 employees to announce important changes to the $65 million 401(k) plan, starting Jan. 1.
"This particular all hands meeting was held out on our ball field at our Mountain View headquarters in July and was a picnic. When the company announced the new matching contribution, our employees were so excited and so loud about it, they drowned out the next announcements from the executives up on the stage," said Susan Wuthrich, human resources consultant.
As part of a periodic evaluation, the company's investment committee realized it was at a crossroads. The company had decided to add two levels of matching contributions to employee accounts. In conjunction with the match, it was an opportune time to revamp the plan's investment options and significantly upgrade service features of the plan. The investment committee, made up of staff from human resources, finance, treasury and legal departments, reviewed the plan and conducted the ensuing search without a consultant.
Because of its high-tech business, SGI's employee population is highly educated, very technical, well-paid and extremely vocal, said Ms. Wuthrich. Employees, most in their mid-30s, have never been shy about expressing exactly what they want from the company.
SGI had a bundled service arrangement with T. Rowe Price Associates Inc., Baltimore, with daily valued record keeping, seven investment options and a live operator voice response system, without automatic features.
Ms. Wuthrich said the investment committee realized it had three options in the redesign of the plan. Since the company was not dissatisfied with T. Rowe Price, the status quo could be maintained, or a new bundled arrangement with another mutual fund vendor a could be made. The last alternative was an alliance approach, using an employee benefits provider as a one-stop shop where it could get a wide array of funds from a variety of providers.
"It became clear to the committee that to offer our employees a spectrum of the best funds from the best money managers, we had to go with an alliance arrangement. We recognized that a single mutual fund family is unlikely to be the best at managing every one of the asset classes and investment styles we wanted to include in our funds array," said Ms. Wuthrich.
Thirteen investment options from 10 mutual fund managers will be introduced in two installments in January and February.
SGI decided to move to a mutual fund alliance coordinated by William M. Mercer Inc., New York. Northern Trust, Chicago, is the plan's trustee.
The investment committee was clear about the 13 diversified investment options to include in the new plan format, but decided to use an external investment management consultant to help with fund searches.
Ultimately, David Orlando, a consultant with The Wyatt Co., New York, conducted fund manager searches and provided the investment committee with a list of between five and six funds for each asset class.
"Once we saw the list of funds, there was a natural fallout of the funds we selected," said Ms. Wuthrich.
The new fund options are: the Northern Investment Capital Reserve Short-term Fund; Fidelity's Intermediate Bond, Advisor High Yield, Blue Chip and Contrafund Funds; the Calvert Social Management Investment Fund; the Dodge & Cox Balanced Fund; the Lindner Dividend Fund; the Wells Fargo Stagecoach S&P 500 Stock Fund; the Templeton Foreign Fund; the MAS Small Cap Value Fund; the PBHG Growth Fund; and the Lexington World Emerging Markets Fund.
The company may add lifestyle asset allocation funds in the future, but Ms. Wuthrich said the investment committee still isn't convinced they are necessary.
Mercer will take on more of the internal work of SGI's human resources department, such as loan processing, rollover distributions and contribution changes. SGI will use Mercer's voice response system to provide automated account access as well as connections to operators, if required. Plan enrollment will still be handled by internal staff on an SGI-developed computer system. SGI also may develop its own financial planning software to help employees with asset modeling, savings projections and investment selection. All plan fees are paid by the company.
The new company match has two levels. The basic match is 25% up to $1,200 in employee contributions in a plan year. A discretionary match also is awarded quarterly to employees based on the company's financial results. The first discretionary match was awarded for the third quarter.
"The indications are that employees really like the new program. The quarterly discretionary match provides employees with a more immediate sense of gratification," said Ms. Wuthrich.
Employees have unlimited transfer capabilities. The plan design does not restrict where the employer match may be allocated.
A communications campaign, using a marketing approach new to the company's communications efforts, features SGI equipment, helping employees identify their benefit with the company. The first introductory brochure, sent in September, depicted an SGI computer on its front, with images of retirement displayed on its screen. The brochure teased employees into anticipating the next informational brochure, sent in mid-December, which featured a different computer with other retirement images on its screen. A third brochure will introduce the last set of funds, available for investment in February.
SGI worked with Zabit & Associates Inc., Saulsalito, Calif., a communications consultant, to develop the new plan brochures. SGI and Zabit will collaborate on investment education materials in the future, with input from Wyatt.
The printed materials are the most visible part of SGI's employee communications, but electronic mail is the company's primary means of communication.
"Our culture supports a full and open dialogue about everything. Our employee converse back and forth all the time on e-mail and discuss everything from the merits of particular new funds to the company match," said Ms. Wuthrich. Monitoring the chat about benefits issues helps pinpoint where plan communications have been unclear, identify issues to be emphasized and implement quick damage control should employees start advising each other with misinformation.
Before the printed materials were distributed, company department managers were encouraged via e-mail to promote the new plan features as much as possible.
SGI's efforts have been working. Plan participation before announcement of the company match was 62%. The proportion of participants has swelled to 75%.