Philip Morris Cos. Inc., New York, and its subsidiary, Kraft Foods Inc., Northfield, Ill., are moving in tandem to enhance their defined contribution plans this spring.
Both are switching to daily account valuation, outsourcing many functions, eliminating most paper transactions and adding new investment options.
While the plans share some common features - the same investment options and account valuation schedule, for example - they are administered separately and have different record keepers. The benefits staff of each company may approach employee communication and investment education with a different emphasis.
Philip Morris' $2 billion Deferred Profit Sharing Plan is converting to daily valuation with its current record keeper, Bankers Trust Co., New York. The Kraft Foods Thrift Plan, a 401(k) also is going to daily valuation though Hewitt Associates, Lincolnshire, Ill. Both plans now have monthly valuations.
Marti Pechnyo, manager of benefits at Kraft, would not disclose the size of the 401(k) plan, but plan assets are listed at $1.8 billion in the 1995 Judy Diamond Standard Directory of 401(k) Plans.
A smooth conversion is one of the advantages of staying with an existing record keeper, said Karen L. Meany, Philip Morris' DPS plan supervisor. "Because our record keeper, Bankers Trust, has known us for a long time and is really familiar with our plan, it's been a very smooth process so far. We haven't had to go through much of the pain you'd have to if you switched to a new service provider, as well as changing to daily valuation."
After the conversion process is completed at each company, three new daily valued mutual funds will be available to Kraft and Philip Morris employees: an international equity fund and a balanced fund managed by Bankers Trust, and a domestic growth equity fund from Twentieth Century Investors Inc., Kansas City, Mo.
Both companies will move to daily account valuation for four existing "non-mutual fund" plan options: a Philip Morris company stock option, and an interest income fund, a Standard & Poor's 500 Stock Index fund and a government bond fund managed by Bankers Trust.
With daily valuation, Kraft and Philip Morris are giving employees freer account transfer capabilities, moving from a once-per-month transfer allowance under the old plan designs. To facilitate access, an automated voice-response system is being added for Philip Morris' 25,000 employees through Bankers Trust. Kraft has operated an automated voice-response system in-house, with Hewitt's assistance for some time. A new upgrade will allow Kraft's 55,000 active employees to talk to Hewitt customer service representatives for about 12 hours a day. Philip Morris employees also will have the option to talk to a live operator during business hours.
In conjunction with enhancements to the voice-response systems, both companies are outsourcing all loan, withdrawal and enrollment functions to their record keepers, said Ms. Meany.
Outsourcing will be a significant change for Philip Morris. "Our employees, especially our hourly employees, need so much personal hand-holding from our staff now that we knew if we kept any part of the process in-house, they'd want us to go on hand-holding forever," said Ms. Meany. Philip Morris isn't aiming to downsize human resources staff with the move but rather to free up staff for other benefits functions, she said.
"We are sure our employees will be really happy with the increased access and better information flow. They weren't clamoring for changes before, but what we've done will be a big improvement," added Ms. Meany.
Enhanced employee communications and investment education have been integral to the roll-out of plan changes. Philip Morris is adding a quarterly investment newsletter for plan participants produced by Bankers Trust and stepped up the pace of benefit communications.
Kraft used its redesigned corporate logo to tie in a new investment education brochure more closely as one component of Kraft Choice, the company's overall benefits program. The brochure is designed to appeal to a broad range of Kraft employees and stresses diversification, said Ms. Pechnyo. To avoid confusion, the brochure concentrates solely on in the 401(k) plan, rather than taking a total financial planning approach. Kraft will supply employees with a quarterly participant newsletter produced by Money magazine.
Both companies have kept up interest in the plan changes throughout the roll-out period by sending teasers in paychecks, enticing employees to watch their mail for more plan details.
"We're in the high 70% range," said Ms. Pechnyo, "And we definitely want to see our number go even higher. The new investment options will really help, as well as the better, more timely access to accounts."