BASKING RIDGE, N.J. - Officials overseeing Avaya Inc.'s $893 million 401(k) plans have moved away from the unitized investment option strategy they inherited and switched to a menu dominated by mutual funds.
Basking Ridge-based Avaya was spun off from Lucent Technologies Inc. in 2000, and its 401(k) plans were patterned after Lucent's, using unitized investment options, said Alayne Gatti, senior manager of benefit plan investments. Unitization creates a pool of assets from the defined benefit plan, using the same managers, that is then divided into smaller units like shares in a mutual fund. This allows the company to pass along the corporate discount to their 401(k) participants, Ms. Gatti said.
Now, executives have taken a fresh look at the three plans, changing the investment option structure and increasing the number of options to 25 from 17. Fidelity Investments, Boston, remains record keeper and administrator, Ms. Gatti said.
Avaya always had two mutual funds in its 401(k) stable. In fact, Fidelity's Magellan fund was the most popular investment. Avaya executives decided to increase the number of mutual funds, partly in hopes of increasing employee satisfaction and partly to keep participants' costs lower by gaining price breaks from their mutual fund providers.
Avaya now has six unitized investment options, including three asset allocation portfolios; 16 mutual fund options; and three company stock funds (two are closed to new contributions). Before the change, there were two mutual funds, three company stock options and the rest were unitized trusts.
Changes spark move
Susan Wong, vice president, human resources global benefits-retirement plans, noted that both the demographics of the Avaya work force and the stock market environment have changed since the company and its 401(k) plans were formed.
The average age of Avaya employees declined to 41 from the high 40s, Ms. Wong said. The company increased the number of investment options offered to give the younger work force more choice - including more equity options and indexed fund options. Ms Wong said they wanted to have enough variety in the options to suit conservative as well as aggressive investors. Avaya executives also wanted to improve employees' understanding of the 401(k) plans by adding mutual funds, which are easier to comprehend and to track in daily newspapers.
New mutual fund offerings are: PIMCO Real Return Fund and PIMCO RCM Large-Cap Growth Fund; Vanguard's Total Stock Market Index, Total Bond Market Index, Explorer, Institutional Index and Developed Markets Index funds; Dodge & Cox Stock Fund; Dimensional Fund Advisors' U.S. Small-Cap Portfolio; the Hotchkis and Wiley Mid-Cap Value Fund; Royce Low-Priced Stock Fund; Smith Barney Aggressive Growth Fund Class A; T. Rowe Price Mid-Cap Growth Fund; and Morgan Stanley's International Equity Portfolio.
The remaining unitized trusts include one for bonds, managed by BlackRock Financial Management Inc.; international equities, Capital Guardian Trust Co.; and stable value, Deutsche Asset Management and BlackRock.
Since the changes were implemented Jan. 1, some 2.6% of plan assets have been moved into the new funds, not including assets that were mapped over to the new funds, Ms. Wong noted.
At the same time, Avaya executives created a new benefits portal, unveiled Jan. 31, which includes information about the company's revamped 401(k) program and its $1.9 billion in traditional defined benefit and cash balance plans, as well as its health and welfare plans.
Ms. Wong said the benefits portal will highlight new plan enhancements. Avaya executives developed the portal with the assistance of the Hay Group, which now runs it, in order to enhance employees' understanding of their compensation and benefits package.
Half of salaried employees and some 30% of union employees have already used the portal, she said, double what executives expected.