PITTSBURGH - Consolidated Natural Gas Co. will make sweeping changes effective July 1 to its $400 million non-union 401(k) plan.
Among the changes, it will hire five managers to offer seven additional investment options and move to an outside record keeper, said Donald W. Borneman, senior assistant vice president-asset management.
In addition, participants will pay the investment management costs, now paid by the company.
The plan will retain three of its four existing investment options and drop two managers.
For the new options, the company hired:
Rowe Price-Fleming International Inc., Baltimore, to offer its International Stock Mutual Fund;
NBD Bank, Detroit, for its Woodward Opportunity small-capitalization stock mutual fund;
Pacific Investment Management Co., Newport Beach, Calif., for an intermediate active domestic bond fund;
Wells Fargo Nikko Investment Advisors, San Francisco, for a Standard & Poor's stock index fund; and
Capital Guardian Trust Co., Los Angeles, for three balanced funds that will offer varying degrees of risks. The two higher risk funds will combine domestic and international stocks and bonds, while the fund with the lowest degree of risk will combine only domestic stocks and bonds.
"We think the balanced fund options will meet the need of employees who aren't comfortable deciding what portfolios (or asset allocation) they should include" in their 401(k) accounts, said Mr. Borneman.
In addition, Consolidated hired Mellon Bank as record keeper, replacing an in-house system. The new Mellon system will enable the plan to accommodate more investment choices and to move to daily valuation and switching from monthly for all of the investment options, except for company stock and a stable value fund, where there will be some restrictions.
The plan will retain its existing actively managed domestic stock portfolio, although it will drop two of the three managers who combined to run it. It will drop INVESCO Capital Management Inc., Atlanta, and RCM Capital Management, San Francisco, while retaining Independence Investment Associates, Boston, as the portfolio's sole manager.
The stock portfolio has only 5%, or $20 million, of the plan's total assets.
Dropping INVESCO and RCM had nothing to do with performance, Mr. Borneman said. Both will continue to manage money for Consolidated's defined benefit plan, which was unaffected by the 401(k) plans.
Mr. Borneman said the non-union 401(k) plan dropped the firms because the diversity they provided no longer was needed with the expanded investment options and diversification available to participants with the 401(k) changes.
In addition, the non-union 401(k) plan will drop an internally run money market portfolio, which also has 5% of plan assets. Mr. Borneman said the company dropped it because it wanted to emphasize the long-term nature of the plan.
The plan will retain the stable value fund, whose insurance contracts are selected and managed internally. The stable value fund has 30% of the plan's assets. Also, the plan will keep a company stock fund, which now accounts for 60% of the plan's assets.
After its implementation this summer, the restructuring will raise the investment choices to 10 from the current four.
Under the restructured plan, participants will pay the cost of investment management.
Mr. Borneman said the fees are estimated to range from 5 to 101 basis points, the latter for the international portfolio.
He said the company shifted fees it previously paid in part because of the improved plan options.
The company considered a bundled approach, that is, having one vendor provide investment and record-keeping services. But Mr. Borneman said that was rejected to give the plan more flexibility to change investment managers as needed and because of competitive costs. He said Mellon offers great flexibility to deal with an unbundled approach.
Also, he said the company was concerned a bundled approach would turn over communications to one vendor, which would promote only its own funds.
The company, which made the changes without a consultant, will provide new communications, assisted by materials and advice from Capital Guardian and Mellon.
