PURCHASE, N.Y. - International Paper Co. is overhauling its $3 billion 401(k) plan, packaging its defined benefit money managers into defined contribution investment options.
The company also is going to a three-tiered investment option structure, in which choices vary depending on participants' financial sophistication.
At the same time, International Paper will switch to daily valuation from monthly.
By unitizing - or creating 401(k) investment options from money manager portfolios in its $5.1 billion defined benefit plan - International Paper expects to offer participants more choice, better performance and lower fees, said Robert Hunkeler, vice president and director of investments. Also, it's easier to oversee one set of money managers.
Eventually, virtually all the asset classes represented in the defined benefit plan will be available to participants in the defined contribution plan.
"We believe that the investment managers in the defined benefit plan represent our very best investment ideas, often ideas that are superior to those we can offer in a savings plan," Mr. Hunkeler said.
The company currently offers six options to its 401(k) plan participants: stable-value managed by Deutsche Asset Management; Vanguard/Wellington as a balanced fund; an S&P 500 fund through Vanguard; Harbor Capital Appreciation Fund for domestic growth; Janus Overseas for international equities; and company stock.
As a first step, International Paper plans to add a domestic small-cap option in February; it will be a composite of the seven domestic small-cap managers the company uses for its defined benefit plan, said Mr. Hunkeler.
They are Arbor Capital Management LLC, Provident Investment Counsel Inc., Artisan Partners LP, AXA Rosenberg Investment Management, Barclays Global Investors, Shapiro Capital Management Co. and Kestrel Investment Management Corp.
IP also will add in February a domestic bond option, blending the portfolios of its defined benefit bond managers PIMCO Advisers L.P., J.P. Morgan Investment Management Inc., BlackRock Inc. and Western Asset Management Co.
The company added BlackRock and Western Asset to its stable of pension fund managers when it acquired Union Camp Corp., and absorbed its pension fund, Mr. Hunkeler said.1
Later, International Paper might unitize managers for domestic midcap equities, domestic high-yield bonds, non-U.S. bonds and emerging markets equities and debt.
"We'll be continually rolling out pieces of our new structure," said Maryanne Rupy, manager, trust investments.
International Paper also is restructuring its 401(k) plan into three levels - basic, intermediate and advanced.
At the basic level, participants will have a choice of three life cycle funds. The intermediate level will have 12 to 15 investment choices, including the plan's current six options and the new unitized funds.
At the advanced level, financially sophisticated participants will have a directed brokerage window enabling them to invest in hundreds of mutual funds, as well as possibly buying and selling stocks and bonds. The brokerage window will be available sometime in 2001, Mr. Hunkeler said.
The beginner level is "primarily targeted to (those) who want a fully diversified portfolio without having to fully understand the components of that portfolio," Mr. Hunkeler said.
The intermediate level, he said, is for "do-it-yourselfers who want to take advantage of some of the economies we can bring to the table, with the idea that we are providing top portfolio management teams at institutional-level pricing."
The advanced level is for those participants who, "despite all of our best efforts, still think they can do it best on their own,"Mr. Hunkeler said, laughing.
IP plans to introduce the changes gradually over the next couple of years. At the same time, it will expand its education and communication efforts, and may add financial planning.