401(K) TO GET STOCK OPTIONS: LABOR DEPARTMENT LIKELY TO APPROVE TRAVELERS' CONTRIBUTION
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • KKR lifts out 3 to focus on clean energy infrastructure
      Richard Johnson
      Appian Capital Advisory adds global investor relations head
      Alternative investment funds faced liquidity squeezes in COVID-19 crisis and 2019
      CI Financial launches global real estate, infrastructure joint venture
    • Callan brings on 2 executives
      Hub International agrees to buy Plan Sponsor Consultants
      Aon names public markets solution leader
      Deloitte to acquire Sydney-based consulting firm Rice Warner
    • Alternative investment funds faced liquidity squeezes in COVID-19 crisis and 2019
      Jerome Powell, chairman of the Federal Reserve, listens during a Senate Banking Committee hearing in Washington on Dec. 1, 2020
      Fed saw some time before taper conditions met – minutes
      International Monetary Fund and World Bank spring meetings signage at the IMF headquarters in Washington
      IMF upgrades global growth forecast, warns of diverging recoveries
      A cashier standing behind a protective barrier assists a customer at a Peter Harris Clothes store in Latham, N.Y.
      Job growth tops 900,000 in March as hiring broadens
    • Pentegra launches pooled employer plan
      Teresa Hassara
      Ascensus taps MassMutual alum as new FuturePlan president
      Economic Group Pension Services scoops up third-party administrator
      OregonSaves gathers $100 million in assets
    • Shoppers wear protective masks while visiting an Apple Inc. store at George Street in Sydney, Australia, on June 24, 2020.
      Apple backs SEC mandate on climate disclosure
      Emissions rise from the Kentucky Utilities Co. Ghent generating station in Ghent, Ky.
      Investors, businesses call for ambitious emissions goals
      Signage for Temasek Holdings Pte. is displayed during a news conference following the company's annual review in Singapore
      Temasek, BlackRock partner to launch carbon-cutting funds
      New York state pension fund limits oil sands investments
    • Ken Griffin
      Ken Griffin donates $5 million to give Miami students internet
      New book culls institutional wisdom from podcast series
      Fearless Girl
      SSGA’s Fearless Girl statue now shattering glass ceiling
      Tangen video
      Norges chief dons chef’s hat to boost employees’ spirits
    • Hedge funds post best first-quarter return since 2000
      Jason Kephart
      Managers see good times ahead in 2021
      Jev Mehmet, CEO of Brevan Howard's Coremont unit
      Brevan Howard runs $50 billion unit like BlackRock’s Aladdin
      A sign outside a Credit Suisse Group bank branch in Murten, Switzerland
      Credit Suisse, Nomura slump as banks tally Archegos damage
    • Mirova adds proxy voting and engagement leader
      S&P Global holds fast on New Jersey’s long-term debt rating
      New York University revamps options for 5 DC plans
    • Mirova adds proxy voting and engagement leader
      Erick Bronner
      Palladium Equity Partners picks new head of fundraising and investor relations
      The Euro sculpture illuminated outside the Eurotower, the former headquarters of the European Central Bank in Frankfurt on Dec. 15, 2020
      European manager AUM rises to record $12.7 trillion in 2020
      Lydia Wu
      Barings chooses head of Greater China distribution
    • Kansas City Employees adopts global strategy with small-cap swing
      Michael C. Viteri
      Arizona appoints new CIO
      A £10 sterling bank note with a pound coin and a ballpoint pen, with focus on the word 'pension.'
      U.K. defined benefit plans’ surplus surges in March
      Columbia University professor Takatoshi Ito
      GPIF treads water as ESG picks up pace
    • Mirova adds proxy voting and engagement leader
      Erick Bronner
      Palladium Equity Partners picks new head of fundraising and investor relations
      Callan brings on 2 executives
      Michael C. Viteri
      Arizona appoints new CIO
    • Bills of euro, dollar and pound currencies, among others
      Ardian closes latest buyout fund at $8.8 billion
      Hand typing on stationary iPhone at an office reception desk
      Private equity’s taste for tech spurs $80 billion deal spree
      Vista Equity promotes 2 to leadership roles on 2 funds
      Azimut takes minority stake in HighPost
    • CalSTRS indutrial property
      Investors hungry for industrial properties
      Tim Wang
      GLP names co-president of logistics, industrial real estate for China
      Frank Forster
      StepStone Real Estate adds managing director for Europe
      Christine Iacoucci
      BentallGreenOak promotes from within to fill Canadian CIO role
    • Andy Schreiner
      New PEPs targeting firms without retirement plans
      Jackie Walorski
      Contribution catch-up for caregivers gaining favor
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
    • Corporate pension contributions
      Eddy Awards 2021
      COVID-19: One year in
      Charging Bull, sometimes referred to as the Wall Street Bull or the Bowling Green Bull, a bronze sculpture that stands on Broadway just north of Bowling Green in the Financial District of New York City
      Top-performing managers Q4 2020
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Insurer Phoenix chooses Barings for real estate debt allocation
      Texas Employees discloses $246 million in commitments
      New York University revamps options for 5 DC plans
      Riverside County adds BlackRock bond fund, drops Templeton fund
    • Insurer Phoenix chooses Barings for real estate debt allocation
      Texas Employees discloses $246 million in commitments
      New York University revamps options for 5 DC plans
      Riverside County adds BlackRock bond fund, drops Templeton fund
    • Passive Investment Management Services
      Active Extended Global Credit Manager Search
      Actuarial Services
      Investment Management Services
    • Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
      Stable value retains edge over money market funds
      Taiwan Semiconductor’s No. 1 in the emerging markets book
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • CalPERS cartoon
      Urgency underscores CalPERS' search for a CIO
      Multiemployer plans cartoon
      Money — but no fixes — for multiemployer plans
      Vaccination cartoon
      Rallying to meet the ongoing COVID-19 challenge
      Tesla cartoon
      Don’t confuse wealth creation with retirement saving
    • Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
      COVID-19 Makes LP Portfolio Management More Important Than Ever
      China: the outlook is bright for longer-term investors
      Finding Differentiation in Securitized Assets
    • Greg Shea and Steven Kindred
      Commentary: The solution for yield-seeking allocators may be hiding in plain sight
      Jim Park
      Commentary: Asian Americans, Pacific Islanders face ‘bamboo ceiling’ in money management
      Jared Gross
      Commentary: Anchors and allocations – breaking the grip of 60/40
      Peter Marber
      Commentary: Is it time for an emerging markets rally?
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • P&I Content Solutions
      Research for Institutional Money Management
      P&I Content Solutions
      Top questions for institutional investors
      Sponsored Content By Newton Investment Management
      Growth and Innovation in Emerging Markets
      P&I Content Solutions
      In Challenging Markets, Systematic Global Macro Strategies Could Hold Opportunity
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:23
      The passive fixed-income glut
      watch video
      1:38
      Is it time for DC plans to embrace private equity?
      watch video
      5:39
      The coronavirus pandemic: One year later
      watch video
      0:45
      Private funds weathered 2020 turmoil
    • Understanding the PEP Evolution
      Divest or engage?
      New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Innovations in DC: Helping supercharge retirement outcomes
    • POLL: The Biden infrastructure plan
      POLL: Retirement income solutions
      POLL: Working after the pandemic
      POLL: The year ahead for the 1,000 largest U.S. retirement funds
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
  • Events
    • Conferences
    • Webinars
    • DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Understanding the PEP Evolution
      Divest or engage?
      New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Innovations in DC: Helping supercharge retirement outcomes
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. Print
March 17, 1997 12:00 AM

401(K) TO GET STOCK OPTIONS: LABOR DEPARTMENT LIKELY TO APPROVE TRAVELERS' CONTRIBUTION

Fred Williams
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    NEW YORK - Travelers Group Inc. plans to contribute stock options this summer to participants in its $2.3 billion 401(k) plan, an industry first.

    The Department of Labor is expected to issue Travelers an exemption letter from prohibited transaction regulations of the Employee Retirement Income Security Act for the proposal by the end of March.

    A Labor Department spokesman said the proposal attracted no objections "of substance" during the comment period.

    "It should be a fairly routine approval," he said.

    Many industry experts expect other companies to quickly jump on the bandwagon.

    Under the proposal, Travelers would contribute stock options annually to the plan for all eligible participants. The number of options contributed would be equal to 10% of an employee's compensation up to $40,000 in compensation - divided by the option price.

    (For an employee with $30,000 in compensation, if Travelers' stock is selling for $60 at the time the option is contributed, Travelers would contribute options entitling the employee to buy 50 shares.)

    Although the options would vest immediately, the term of each stock option would be 10 years and could be exercised at a rate of 20% per year. The timing of exercising the option would be up to the participant.

    No employee contribution would be tied to the stock option contribution.

    The stock options would be contributed and held as a separate plan option. The contribution would be made automatically each year with no action required by the participant.

    The stock options are an expansion of Travelers' WealthBuilder Plan, which Chairman and Chief Executive Officer Sanford Weill created last year. Mr. Weill strongly supports increasing the numbers of shares held by employees. In WealthBuilder, options were granted to all full-time employees , but not through the 401(k).

    According to Travelers' filing documents, the stock options are designed to "enhance the value of the assets" in the plan and are being contributed because executives believe that ownership of the stock by employees is "desirable."

    About one-third of Travelers' 401(k) assets are Travelers' stock - about $600 million in common stock, $168 million in preferred stock and $45 million in Travelers/Aetna Property Casualty stock.

    Of the Travelers Group's 60,000 employees, about 70% participate in the plan, which covers subsidiaries Smith Barney Inc., Commercial Credit Co., Primerica Financial Services, Travelers Insurance Co., and Travelers/Aetna Property Casualty Corp.

    Travelers designated its trustee, Citibank, New York, to process the proposed stock option transactions.

    In its filing documents, Travelers also said Smith Barney may be selected to provide brokerage services to exercise the options and the sale of stock. If Smith Barney is selected, the services would be without commission, fees or other compensation, according to Travelers.

    Exemption is 'significant'

    Mike Butler, a consultant with Hewitt Associates L.L.C. in Rowayton, Conn., said the details are not as significant as the Labor Department granting the exemption.

    "Qualified (defined contribution) plans have not been permitted to hold options; it was uncharted territory and was considered off limits," Mr. Butler said. "This will open all kinds of new opportunities; it really will generate a good deal of excitement."

    Industry experts pointed out the benefits to plan sponsors of contributing stock options to 401(k) plans. But they also warned of potential problems.

    Dennis Coleman, principal at Kwasha Lipton Group, Fort Lee, N.J., said the contribution is a "low-cost way of funding benefit plans."

    "Rather than contributing company stock, all you are contributing is the right to buy and it doesn't really cost you anything. And, to the extent the stock goes up and does well and participants exercise the options, the company does well, and this becomes a drop in the bucket, almost like a free lunch," said Mr. Coleman.

    Mr. Butler said the Travelers' approach can conserve cash, yet is another way to promote employee ownership.

    Other benefits, he said, include favorable tax and accounting treatment.

    Not a free way

    But options have value and "opportunity costs," he said, because the option holder receives shares of stock that cost the holder less than the appreciated market price.

    "It is an innovative approach and will provide new opportunities for companies but it is not a free way of delivering value," Mr. Butler said.

    Mr. Coleman said he does not support major use of employer securities - be they stock or stock options - to fund retirement programs.

    "I have a problem with qualified plans investing too heavily in company securities," he said.

    "Philosophically, to fund benefits with stock options goes beyond funding with company stock," Mr. Coleman said.

    He said the run-up in the stock market over the past six years has contributed to the movement toward equities by 401(k) participants, and the use of options "is just adding fuel to the fire of market speculation."

    But "at some point, when this bubble bursts, there will be lot of sorry people."

    Mr. Coleman added: "While this is a new way of funding qualified plans, when does the employer get the deduction and what is the amount of the deduction? They are not contributing anything but a right to buy the stock."

    IRS ruling also sought

    The deduction question must be decided by the Internal Revenue Service, from which Travelers has requested a private letter ruling.

    If other employers decide to follow Travelers and apply for an exemption, the Labor Department expects to be able to process the applications in a timely fashion.

    Olena Berg, assistant secretary of labor, said the department has a relatively new program to expedite exemption applications that deal with similar issues and put them on the "fast track."

    Jim Klein, principal and attorney at Towers Perrin, New York, said companies might be interested in the practice because of the longer time horizon, noting some employers increasingly are wary of participants trading in company stock funds when there are price increases.

    He said companies "would not like (participants) exercising the options and then selling the stock. But if I can do this in a 401(k) - where they can't get the money out right away by giving them options which they can't use right away - it may be of interest to some."

    Rich Koski, principal at Buck Consultants, Secaucus, N.J., agreed, saying options could be used to slow "profit taking" by participants because one employer aim is to retain the stock in the plan. "They don't want (participants) liquidating and taking the gains."

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    Gender diversity is improving on FTSE 350 boards
    Gender diversity is improving on FTSE 350 boards
    Innovations in DC: Helping Supercharge Retirement Outcomes
    Sponsored Content: Innovations in DC: Helping Supercharge Retirement Outcomes
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
    COVID-19 Makes LP Portfolio Management More Important Than Ever
    China: the outlook is bright for longer-term investors
    Finding Differentiation in Securitized Assets
    Green and sustainable bonds in emerging markets
    Portfolio Protection: One Size Fits None
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    April 5, 2021 Page One

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center