ROCHESTER, N.Y. - Eastman Kodak Co. revamped its $4.6 billion 401(k) plan, using an innovative, tiered investment approach.
After a brief conversion period in January, Eastman Kodak's 65,000 U.S.-based employees will have access to three graduated tiers, or "windows," of investment choices with a total of 36 options. The plan now offers just six options from multiple managers.
The windows allow employees to choose from:
*A first tier with a series of three basic lifecycle options;
*A second tier of six core commingled funds; and
*An advanced tier of 27 mostly actively managed mutual funds and commingled funds, managed by multiple fund families.
The big winner in the revamp will be State Street Global Advisors, Boston, which will manage core funds in the second tier that form the building blocks of the lifecycle funds.
Hewitt Associates L.L.C., Lincolnshire, Ill., was retained as record keeper; the plan will move to daily valuation from monthly on Jan. 27.
Eastman Kodak hopes to widen the plan's investment options without increasing confusion because the window concept targets the needs of different kinds of employees, said Rita D. Metras, director of benefits policy for pension and savings plans.
Ms. Metras said employees with little interest in investment may choose a single balanced fund and meet retirement savings objectives with a diversified portfolio. More sophisticated employees can create diversified portfolios of actively managed funds from the higher investment tiers.
The first window provides three lifecycle options for employees not interested in managing their investments actively and who want to make a single choice based on their time horizon. Eastman Kodak's investment committee designated the appropriate asset allocations for each time horizon option:
*The conservative lifecycle option, Simple Choice, has an allocation of 45% equities and 55% fixed income. It is for employees with a time horizon of five to eight years.
*The moderate option, called Choice, is for employees with an eight- to 20-year horizon; it will have a 75% allocation to equities and 25% to fixed income.
*The most aggressive option, Lots of Choice, will be invested entirely in equities; it is for employees with a time horizon of more than 20 years.
The Simple Choice balanced funds are invested in the passive commingled funds available separately in the second tier.
More sophisticated investors will be able to mix their own allocations using four passive commingled funds, all managed and administered by State Street Global Advisors: a Lehman Aggregate bond Index fund; a Standard & Poor's 500 large-stock index fund; a Russell 2000 small-stock index fund; and a non-U.S. stock index fund, which invests mostly in stocks from developed countries but has some emerging markets exposure.
The second tier also includes a fixed-income option, mostly invested in guaranteed investment contracts, which is administered by Eastman Kodak staff, and the Kodak Stock Fund. Both are existing options in the current plan lineup.
The final investment tier offers 27 mutual and commingled funds that will allow employees to reap the benefits of the full risk-reward spectrum, according to Ms. Metras.
"We'll be telling people that if they don't want to get confused, not to even open the booklet describing the Lots of Choice investment options," she said.
The advanced level is composed of two bond funds, a balanced fund, 17 domestic equity funds and seven international equity funds.
Mutual fund management firms include Putnam Investments, Boston; Pilgrim Baxter & Associates, Wayne, Pa.; T. Rowe Price Associates Inc., Baltimore; Morgan Stanley Asset Management, New York; and MFS Asset Management Inc., Boston.
Three funds included in the current plan will be carried over to the advanced tier: the Fidelity Puritan Fund; the RogersCasey Smaller Stock Fund; and the Russell International Stock Fund.
One existing option, an S&P 500 index fund managed by Barclays Global Investors, San Francisco, has been replaced by an S&P 500 index fund managed by State Street Global.
Ms. Metras said the company's treasury staff, together with representatives from the human resources and legal departments, was involved in the selection of new funds and sought to avoid overlap in investment style risk spectrum coverage.
Consultant Ellen Petrino of Evaluation Associates, Norwalk, Conn., assisted with investment option selection, according to Ms. Metras.
In addition to the sweeping changes in the investment management of the 401(k) plan, Eastman Kodak also increased the maximum salary deferral rate for employees to 18% from 15%.
The limit was raised, said Ms. Metras, because several thousand non-highly compensated employees were contributing the 15% maximum without hitting the $9,500 maximum limit imposed by the Internal Revenue Service.
Eastman Kodak does not provide matching contributions to the 401(k) plan, but employees can choose to direct annual profit-sharing awards to the 401(k).
Plan participation is about 75%, said Ms. Metras.
With new investment choices, Ms. Metras said an enhanced investment education program is under way, with employee meetings planned around the country to introduce the new system. Eastman Kodak executives worked with both officials of both Hewitt and State Street Global to develop workbooks that help employees with the basics of investment education.
Fund descriptions are provided for the Tier III mutual and commingled funds, as is performance history through 10 years, best and worst years, assets, and fund manager comments.
Also under consideration for plan communication is retirement software planning programs and use of Eastman Kodak's intranet for the posting of plan-related information.
