Will defined contribution plan participants want to invest in General Electric Co.'s defined benefit plan?
That's the hope of officials at Genworth Financial Inc., Stamford, Conn., the newly restructured financial arm of Stamford-based GE, which is developing a program that would allow 401(k) plan participants to put all their money into a fund that would mirror the investment lineup of the GE defined benefit plan, with a 5% guaranteed return plus the possibility for upside returns if the plan performs well.
"If the upside took the 5% return up to an 8% or 9% return, people would have to look at it," said Ron Eisen, president of Investment Management Consultants, Portland, Ore. "The upside is only as good as their ability to provide it, but GE has been very good at providing an upside for their defined benefit plan," said Mr. Eisen.
GE's $41 billion defined benefit plan returned 11% for the year ended Sept. 30, 2003.
Tim Benedict, a Genworth spokesman, declined to comment on the new product, saying it had not yet been formally announced.
"It's interesting (for GE) to give a guarantee in this environment," said Roxanne Fleszar, principal and founder of Financial Resources Management Corp., Peabody, Mass., a consultant to midsized pension plans. "Guarantees are hard to do. I'm skeptical and somewhat reticent. I've got to see the fine print before I would offer someone a guarantee."
"It (the new product) sounds interesting, and it could have appeal," said Ted Benna, president, 401(k) Association, Cross Forks, Pa. "They (GE) are a big group to be doing something like this … the question could be how it stacks up against stable value products."
"It's definitely an interesting idea; I'd like to learn more about it," said Joe Schuster, senior manager for the $70 million defined contribution plan of Domino's Pizza, Ann Arbor, Mich. However, "it might be pushing the limits. There are a lot of great ideas that come out, but then the government might say it's no good."
At least one person was skeptical. "It sounds odd to me," said Bob Frazier, assistant treasurer in charge of the $2 billion defined contribution plan at Kimberly-Clark Corp., Dallas. He was concerned that the contributions might have to stay in the plan for a long time, with the possibility that other investments might do better than the guaranteed 5%.
Don Bartolai, head of defined contribution consulting for Mellon Human Resources & Investment Solutions, Chicago, said it could be good for plan participants who are nearing retirement "to buy into a plan that has a good short-term return."