NEW YORK - The Cement and Concrete District Council Annuity Fund is switching its $43 million trustee-directed deferred compensation plan to a new, member-directed money purchase plan.
With the change, fund officials are taking a new approach to creating an investment option that will mirror the trustees' allocation.
The district council comprises three New York cement and concrete union locals: 6A, 18A and 20. Trustees decided to switch to a plan that allows 3,300 union members to direct their own assets when members began asking to do so, said Tom Reynolds Jr., vice president of Reynolds Securities Ltd., New York, the union's consultant. New York Life Benefit Services LLC, Norwood, Mass., was hired in December as record keeper; the revamped plan will be launched sometime this spring.
Gabelli Asset Management had invested the entire fund, Mr. Reynolds said.
But even before the switch to member direction, trustees will be changing the asset allocation of the plan. Union trustees decided to move to a more aggressive asset allocation to make the plan more competitive, Mr. Reynolds said.
The assets will be moved to 75% fixed income and 25% equities from 90% fixed income and 10% equities. When the conversion is completed, the current assets will map into a default investment option, called the "core fund," which will mirror the new allocation, said Josh Samilow, vice president of Taft-Hartley services for NYLB.
Instead of using two mutual funds to form a core option to approximate this asset allocation in the new member-directed plan, as many plans do, trustees have decided to take a different approach. They have hired two money managers to develop a core investment option reflecting the new asset allocation, Mr. Reynolds said. It's unusual for a plan to mirror its defined benefit investments in its defined contribution plan; also, most defined contribution plans use mutual funds.
The incumbent, Gabelli, will manage the equity portion. MacKay-Shields Financial Corp., New York, NYLB's sister company, has been hired to manage the fixed-income side, Mr. Reynolds said. The benchmark for MacKay-Shields will be the Lehman Government/Credit Bond index; Gabelli's benchmark will be the Standard & Poor's 500 stock index, he said.
Using separate accounts instead of mutual funds "is much cheaper, and on top of that is the added value of controlling the proxies," Mr. Reynolds said.
The default fund is important because the lion's share of assets in most self-directed plans remain in the core option, Mr. Reynolds said. "Even with older (member-directed) plans that have been around for three or four years, we do not see assets moving out of the default or core fund in excess of 50%. The most aggressive (asset allocation) still keeps 50% in the core fund."
Some money managers won't allow plans with less than $50 million in assets to create such a portfolio, Mr. Reynolds said.
However, Mr. Samilow said Taft-Hartley member-directed plans are a fast-growing business for NYLB. In 2000, NYLB added about $400 million in Taft-Hartley assets, doubling assets managed for such plans. This year, the company expects to add another $500 million in assets in Taft-Hartley plans.
So far, the Cement and Concrete District Council has not chosen the other eight to 12 planned investment options. Trustees still are drawing up guidelines and objectives for the new options, Mr. Reynolds said.