SPARTANBURG, S.C. - Flagstar Corp. has redesigned its two 401(k) plans, targeting only its core, longer-term employees.
The company, which employs about 90,000 people in 2,000 company-owned and 600 franchise restaurants, will convert its plans to a quasi-bundled daily valuation service with eight investment options.
American Express Institutional Services, Minneapolis, was selected as the plans' new service provider from a short list that included both bundled and mutual fund alliance vendors.
Although most companies seek higher participation rates when they revamp their plans, that's not the case at Flagstar. "We have relatively low participation in our plan, but it's not a benchmark for us of success," said Lee Holliday, director of retirement and savings.
"We have a lot of entry-level employees earning a low wage, and they just aren't interested in putting any money away in a retirement plan. It's a function of the restaurant business to have a high employee turnover, and our plan is designed for those employees who are going to be around for a while."
Among the new investment options, the Templeton Foreign Fund, managed by Templeton Worldwide, Fort Lauderdale, Fla., will be the plan's first international equity option.
Four options, custom-blended by consultant RogersCasey, Darien, Conn., will invest in various mutual funds to achieve specific investment goals.
The Small Company Option will invest 50% of its assets in the Small Cap Value mutual fund managed by Lazard Freres Asset Management, New York, and 50% in the American Express Emerging Growth mutual fund.
Three blended funds will provide conservative, moderate and aggressive asset allocations. The conservative portfolio has a target of 60% stable value and 40% equities; the moderate portfolio has a 40% stable value and 60% equity target; and the aggressive option has more than 80% invested in equities.
Two more equity mutual funds also are used in varying degrees by RogersCasey in the blended funds to provide further portfolio diversification: the IDS New Dimensions Fund, a large-cap growth fund, and the Neuberger & Berman Focus Fund, a large-cap value fund.
American Express will assume administration of the Flagstar company stock option, and will manage a stable value and a Standard & Poor's 500 Stock Index fund.
American Express, Mr. Holiday said, was "very flexible about investment options."
"We could use funds outside their family without any appreciable increase in cost. And unlike many other vendors, the pricing was very straightforward. We know exactly what everything will cost," he said.
The investment options in the plan will cost "much, much less than we could negotiate ourselves in an unbundled program," Mr. Holliday added.
Under American Express' statement format, plan expenses - paid by the participant - will be broken out for the first time, so it was important for the company to have simple and low pricing.
The $46 million Flagstar 401(k) plan covers employees at corporate headquarters and salaried employees from the Hardee's franchises and Quincy's Steak House restaurants. The $75 million Denny's 401(k) plan covers employees working at Denny's and El Pollo Loco restaurants.
Changes to the investment options have been needed for some time, the monthly valuation system had been slow, and loan and withdrawal procedures cumbersome, Mr. Holliday said.
"RogersCasey evaluated our plans to see how they could be modernized to take advantage of new administrative and cost efficiencies resulting from so much new technology," he said.
The changes, effective Sept. 1, also include a feature-rich voice-response system that allows employees to enroll; transfer account balances; change asset allocation; change contribution levels; and request loans and hardship withdrawals. The longest possible employee access to operators also was important; American Express phone representatives will be available 15 hours a day.
Currently, the plans use monthly valued record-keeping systems from Godwins, Booke & Dickenson, Winston-Salem, N.C., and trust services from NationsBank, Charlotte, N.C. Current investment options are company stock, the Vanguard Explorer equity mutual fund, a Dreyfus equity fund and a stable value fund managed by Brentwood Associates, Los Angeles.
Flagstar just began mailing news about the improvements to participants.
All communications and education material from American Express is customized for Flagstar, which was important to the company because enrollment meetings and employee training have not been effective and are not planned for the new plan design, said Mr. Holliday. A how-to video will be distributed.
Flagstar is not planning a huge campaign to encourage more participation. One letter announcing the plan improvements will be sent to eligible employees.