CLEVELAND - TRW Inc. overhauled its $2.4 billion 401(k) plan, capitalizing on staff expertise in managing TRW's $3 billion defined benefit plan.
Investment options were expanded to nine from five; only two existing options were retained.
Putnam Investments, Boston, was hired as bundled provider.
Most of the new funds are from Putnam. But Robert Hamje, president of TRW Investment Management Co., which also oversees TRW's $3 billion defined benefit plan, said Sanford C. Bernstein & Co. and Pilgrim Baxter & Associates also were included in the new mix.
"We didn't want to be locked in with one firm for investments," said Mr. Hamje. "At TRW we manage the pension fund, we select and evaluate managers and we do the asset allocation work. We wanted to take that expertise and apply it to the 401(k) plan; we wanted to apply the same management structure to the 401(k)."
Ultimately, he said, the 401(k) plan will look more like TRW's defined benefit plan money management structure. Further changes could be made.
Mr. Hamje said because TRW uses Bernstein and Pilgrim Baxter in its defined benefit plan, executives already are familiar with their style, performance and investment staff.
TRW also capitalized on its relationship with Callan Associates, San Francisco, which helped structure the new TRW 401(k) plan design.
"We use Callan on the (defined benefit) pension side," said Mr. Hamje. "They helped us design the RFPs and ask the right questions. It was a natural thing for us to ask them to help."
TRW now is Putnam's biggest 401(k) client. Putnam's strength traditionally has been in the middle market.
After considering other vendors, Putnam was selected with the knowledge that "we would be a large account for them and we wanted to get some attention," Mr. Hamje said.
"They had tremendous flexibility and did not offer us a cookie-cutter approach. They offered a customized approach . . ."
Mr. Hamje said TRW began reviewing its existing plan earlier this year and "decided to revamp the plan and start from scratch; we wanted to look at the marketplace. There were things in the (previous) plan that we liked and there were other things that we wanted to replace."
The plan overhaul was undertaken in response to employee requests. "We have a sophisticated group of employees and they were seeking other options. It was time to look at the program anyway," Mr. Hamje said.
The plan had a "plain vanilla" look, he said, and in some instances was "too complex."
For example, he said, Bankers Trust Co., New York, was the custodian and received record keeping data from INVESCO. Both were replaced by Putnam.
Bankers Trust also was terminated as investment manager for three options - an S&P 500 index fund, a Russell 2500 fund and a bond index fund.
A stable value fund managed by PRIMCO Capital Management, Louisville, Ky., which is owned by INVESCO, and a TRW company stock fund were retained in the new line-up.
New investment options are Putnam Income Fund; George Putnam Fund of Boston; Putnam S&P 500 Fund; Putnam Investors Fund; Putnam Russell 2500 Index Fund; PBHG Growth Fund; and Sanford Bernstein International Equity Fund.
Bernstein manages domestic and international equity portfolios in the TRW defined benefit plan; Pilgrim Baxter, domestic equities.
The approach does not involve unitizing the defined benefit managers. "We are not unitized yet but we may be in the future. We might clone the defined benefit plan and offer defined benefit (shares) in the 401(k) plan, but we are not there yet. This will give us the opportunity to do that at some point in the future," Mr. Hamje said.
For now, he said, "what we have done is to take the plain vanilla plan options and array some actively managed funds against it."