Two companies are reworking their defined contribution plans, expanding investment options, semi-bundling services and adding automatic enrollment features.
The changes include:
* Champion International Corp., Stamford, Conn. is expanding the investment options and bundling some services for its $900 million plan July 1.
* Collins & Aikman Group Inc., Charlotte, N.C., is realigning its $237 million in retirement plans -- changing managers and record keepers and scrapping its profit-sharing plan, among other modifications.
On July 1, Champion will include actively managed funds in its current lineup of mostly index investment options, and outsource the education and communication services it had been doing internally.
"We thought the savings plan is a very valuable benefit," said Mark Lehman, director of benefits, administration and integrated personnel systems. "We weren't sure how well people understood" the 401(k) plan.
Champion also has a $1.8 billion defined benefit plan, according to the 1999 Money Market Directory.
Executives at Champion have had a hectic year. In addition to the changes taking place July 1, in January staffers at the integrated forest products company added an automatic enrollment feature. And by early 2000, plan executives expect to add a brokerage account window.
Champion hired J.P. Morgan/ American Century Retirement Plan Services, Kansas City, Mo., as record keeper and trustee, and to provide education, communication and management of some funds, he said.
The former record keeper was Administrative Solutions Group, Deerfield, Ill.; the trustee was State Street Bank, Boston.
Champion will retain its eight current investment options and two of its managers: Dwight Asset Management Co., Burlington, Vt., will continue to manage a stable value fund; and Barclays Global Investors, San Francisco, will retain the small company index and international index funds. Barclays also will replace Metropolitan Life Insurance Co., New York, as manager of a Standard & Poor's 500 index fund.
"This keeps all of the indexes with Barclays and reduces management fee expense to participants," Mr. Lehman said.
The plan will add six actively managed funds: American Century's Equity Income, Select, Ultra and International Growth funds; and J.P. Morgan's Large Company and Select Small Company funds.
The plan also will retain three pre-mixed portfolios -- conservative, moderate and aggressive. The new actively managed funds will be added to these portfolios, as well as being offered separately.
The pre-mixed portfolio options haven't been popular with participants, attracting only about 10% of plan assets, Mr. Lehman said. Forty-five percent of the plan's assets are in the stable value fund, he added.
The plan also will continue to offer a company stock option.
The company match is in stock, he said. The company contribution is 50 cents on the dollar up to 6% of pay with a maximum of 3%, he said.
Company executives already see benefits to the automatic enrollment feature. Although the plan participation rate has been 88%, internal company studies conducted before the switch to automatic enrollment revealed new employees were not taking advantage of the 401(k) plan, Mr. Lehman said. Only 30% of new hires were joining the plan; instead, people tended to wait three years before participating.
Under automatic enrollment, 85% of new employees, all of whom are eligible immediately, have stayed with the plan, he said.
The default deferral is 6% of pay on a pre-tax basis, and unless the participant chooses otherwise, this contribution is invested in the stable value fund, Mr. Lehman said.
Because of participants' historically conservative investments, company and J.P.Morgan/American Century executives stressed diversification during the 160 enrollment meetings held so far, said Robert E. Schott, vice president and senior communication consultant for J.P. Morgan/ American Century and who spearheaded Champion's campaign.
Collins & Aikman shakeup
At Collins & Aikman, company executives shook up the retirement system to make it more cost effective for the automotive interior systems supplier, while at the same time boosting participation.
By July 1, the company will have changed money managers in its 401(k) plans, totaling $126 million, and its $111 million cash balance plan; scrapped its profit-sharing plan; changed the 401(k) record keeper; added an automatic election feature to its 401(k) plans; enhanced or added a company match to its 401(k) plans; and boosted investment options in the 401(k) plans.
Collins & Aikman also hired J.P. Morgan/American Century to provide some investment management, as well as record keeping, trust services and communications for its cash balance and 401(k) plans, said Greg Tinnell, vice president of global compensation and benefits for Collins & Aikman.
J.P. Morgan/American Century will provide the eight core options in Collins & Aikman's 401(k) plans and all of the investment funds in the cash balance plan, he said. Company executives are expanding the core options to eight from four in the 401(k) plan but have not yet selected the funds for the cash balance plan.
The investment managers being replaced are Aetna Inc., Aeltus Investment Management Inc., Dresdner RCM Global Investors, Columbus Circle Investors Inc., Delaware Investment & Retirement Services Inc., PIMCO Advisors LP and Provident Investment Counsel Inc.
The previous record keeper was Metropolitan Life Insurance Co. Bankers Trust Co. was the trustee for the 401(k) plan and CTC Illinois Trust Co. was the trustee for the cash balance plan.
So far, the company has reduced staff by two individuals and saved almost $1 million, he said.
The new options for the 401(k) plans are: American Century's International Growth, Strategic Asset Allocation (moderate), Equity Income and Ultra funds; and J.P. Morgan's Prime Money Market, Bond, Smart Index Institutional and U.S. Small Company funds. The bond and aggressive equity funds are new, Mr. Tinnell said.
The company also is adding a Schwab brokerage window and is continuing to offer a company stock investment option, Mr. Tinnell said.
The company contribution is in cash.
The firm formerly had a three-part retirement benefits program, with multiple defined contribution plans, the cash balance plan and a profit-sharing plan, Mr. Tinnell said.
But with a profit-sharing drop to 2% of payroll from 15% to 18%, due to a narrowing of profits in its industry, Collins & Aikman decided to scrap the profit-sharing plan and add a company match in its 401(k) plans that didn't already have one, he said.
Before the revamp, only some of the union plans had company matches, Mr. Tinnell said. Now, all of the plans will have them. He declined to reveal the company match for union and non-union employees.
In order to boost participation, which is around 48% for non-union employees and less for union workers, company executives decided to add automatic enrollment to the non-union 401(k) plan. All non-union employees who have been with Collins & Aikman for a month will have 6% deducted from their pay annually and contributed to the 401(k) plan unless they opt out of the plan, he said. The default investment option for those automatically enrolled will be the asset allocation fund. The goal is to raise the participation rate to 80%.
With J.P. Morgan/American Century taking over the administration of both the cash balance and 401(k) plans, participants will receive a single statement for all of their retirement plans, he said.
While the company will save money by using a single provider for both its cash balance and 401(k) plans, the management fees will not be as low as originally envisioned, Mr. Tinnell said.
As the surviving portion of the once-giant Wickes Co., Collins & Aikman is responsible for Wickes retirees, he said. J.P. Morgan/American Century will be handling that as well.
Rich Koski, a principal with Buck Consultants who is not associated with Collins & Aikman, said "a fair amount" of plan sponsors are hiring mutual fund companies to administer and do record keeping for both their cash balance and 401(k) plans. But, he noted, there are hidden problems with that approach that might not become apparent until participants begin to retire.
"Unless the mutual fund company has a full benefit calculation and full support of ERISA minimums, record keeping is not going to be enough," Mr. Koski said.
If the new record keeper pays out retirement savings from the cash balance plan the same way it does the 401(k) plan, it is going to run into "a huge black hole with the IRS," Mr. Koski said.
J.P. Morgan/American Century has different groups that separately administer the cash balance and 401(k) plans, said Tom Kmak, senior vice president in charge of defined contribution plans.