SAN FRANCISCO - ChevronTexaco Corp. is giving plan participants the option to shift assets from company stock to money market funds during the "blackout" period in which 401(k) records are switched over to the company's new record keeper, Vanguard Group, Valley Forge, Pa.
Consultants say ChevronTexaco is on the leading edge of what could be a trend - particularly among very large companies whose participants have a lot of money in company stock - that has been fueled by the high-profile collapse of Enron Corp. About two-thirds of the $7.5 billion in ChevronTexaco's defined contribution plan is in company stock.
"Chevron's on the cutting edge of this," said William Schneider, president of consulting firm Dimeo Schneider & Associates, Chicago. "I think you'll see a lot more of it. I think it will become standard operating procedure."
Vanguard was selected last fall as record keeper for the newly combined defined contribution plan created by the merger of Chevron Corp. and Texaco Inc. (Pensions & Investments, Oct. 29). The process of shifting records to Vanguard from Chevron's old record keeper, CitiStreet, Quincy, Mass., was scheduled to begin April 1, and take about two weeks, said David Smay, general manager-investment-benefit plan investments at ChevronTexaco. The blackout period, therefore, should conclude by mid-April.
"ChevronTexaco has stepped up in a big way," said Paul Heller, head of Vanguard's defined contribution business. "They're not waiting for legislation to pass. They've really done a terrific job in getting out in front of the financial issues that their employees are going to face."
One request
ChevronTexaco participants will be allowed to send one request to Vanguard to shift assets from company stock to money market funds during the blackout. The option makes the conversion a little more complex, said Mr. Heller, noting the stock-to-money market transfers would be done manually. After the blackout period, plan participants will be free to move assets as they wish; assets moved from company stock will not have to be reinvested there.
ChevronTexaco employees have a substantial amount of assets in company stock, said Mr. Smay. A major shift to money markets from company stock could have an impact on the company's stock price, but there has been little shift from company stock since Chevron and Texaco merged last fall, he said.
ChevronTexaco plan participants receive company stock as an employer match; the stock also is offered as an investment option, said Mr. Smay. Plan participants can invest assets virtually without constraints and aren't required to hold the stock they buy for any specific period. ChevronTexaco's decision to grant participants full diversification was made before the Enron scandal.
The idea to allow participants the option to move into money market funds during the blackout period, however, was in response to Enron situation, said Mr. Smay. "We want to ease anyone's concerns that they can't do something during that two-week period, that some crisis could occur and they're going to be locked in."
Strong stock
ChevronTexaco stock has been strong, trading around $90 a share. Right now, it looks better to plan participants than many of the investment options, Mr. Smay said, but over the long term, the idea is to have participants understand diversification and make informed decisions.
To that end, the Vanguard platform includes financial advice for participants through a partnership with Financial Engines Inc., Palo Alto, Calif.
Consultants don't think that there will be an exodus out of company stock, in fact, there probably won't be a blip. Mr. Schneider doesn't expect to see many ChevronTexaco plan participants take advantage of the offer. But while he expects most employees will hold their shares, Mr. Schneider said the gesture is a necessary one.
"By restricting plan participants you're doing nothing but painting yourself into a fiduciary corner," he said.
Indeed, ChevronTexaco employees were deluged with letters and emails about the impending blackout period, said Mr. Smay, and there has been virtually no activity or concerns raised by participants. Company stock remains around 66% of the assets in the plan.
Roxanne Fleszar, principal at Financial Resources Management Corp., Peabody, Mass., agreed it was a good move by ChevronTexaco, and she expects more corporate plans to follow suit, although she hasn't heard of any yet.
