More treasury execs keeping eye on 401(k)s

American Electric Power and HNI are part of a growing trend toward including treasury and finance executives in overseeing the investment side of their 401(k) plans.

Financial executives had been involved with their companies' defined contribution plans when the investments were separate from the record-keeping and administrative functions that were handled by the human resources and benefits departments. When Fidelity Investments and other giant players stormed the record-keeping marketplace in the early 1990s with bundled products that included investments, many HR/benefits departments oversaw these bundled relationships.

Now, though, as investment options are getting more complicated and fiduciary responsibility for company stock has become a big issue, more treasury and financial departments are getting involved again.

Steven Kiser, director of trust and investments for Columbus, Ohio-based American Electric Power Co. Inc.'s $2.8 billion retirement 401(k) plan, said, "We work very closely with the HR group when evaluating funds."

AEP's treasury department was not always so involved with the 401(k) plan, said Mr. Kiser, adding its $3.5 billion defined benefit plan was the main area of focus for treasury. But as assets for the 401(k) plan grew, his department became more involved in the investment selection process.

Mr. Kiser said the 401(k) plan recently switched providers to JPMorgan Retirement Plan Services, Kansas City, Mo., from Fidelity Investments, Boston. That was one of the first major 401(k) initiatives in which his department was involved.

"The treasury department has more of a financial background and can bring more of a focus on fees and performance," said Mr. Kiser, adding that he sits on the company's 401(k) committee with other trust executives and human resources professionals.

"There is a lot of money at stake, and participants need the best choices for a good retirement," he said.

Bob Foster, vice president of compensation and benefits at HNI Corp., Muscatine, Iowa, said the company's CFO and treasurer within the past year became involved in investment selection for the $700 million 401(k) plan. "It's appropriate to have finance involved. They bring various expertise to decision-making," such as monitoring investment performance and staying on top of new products and services, said Mr. Foster.

Other 401(k) plan executives have been early believers of the human resources and finance department team effort.

Thomas K. Witt, director of savings and retirement for San Antonio-based HE Butt Grocery Co., said he was brought on a few years ago as part of the finance team to revamp the 401(k) plan.

"Typically, financial people understand investments a lot more than HR people do. My observation has been that HR-run plans are dominated by mutual funds and have too many choices. They wanted better choices and hired me to make those choices. We have seven fund choices. Three are balanced, and I'm the one that does the balancing. Those three funds represent 88% of the plan's $1.2 billion," said Mr. Witt.

Patrick Cutshall, retirement fund manager for Duluth, Minn.-based ALLETE Inc.'s, $280 million 401(k) plan, said all of the plan's investment decisions are made by treasury. As part of the finance department, Mr. Cutshall sits on a board that oversees mutual fund review and selection for investment options.

"But it's really a team effort. The education and benefits issues are run through human resources," he said.

Consultants expect this trend to continue.

Phil Seuss, principal at Mercer Human Resource Consulting, Washington, said historically, company officials have paid more attention to defined benefit plans. "By comparison, DC has been handled in the human resources area, and not a lot of time or resources were spent on it. But now there is a realization of the assets involved, and there is a greater focus on governance," he said.

Josh Cohen, a Chicago-based consultant for Russell Investment Group, said the treasury department is involved in "thinking of a more institutional approach with the type of investment vehicles and available investment options. Treasury and finance departments really understand the costs associated with managing funds and running a plan."

Mr. Cohen said finance executives at large 401(k) plans have more insight on separate accounts and commingled funds, as well as how to unitize these options.

Having the finance department involved in the plan is definitely advantageous, said Mr. Cutshall. "There is much more understanding of the products and understanding and interest in investing. HR is interested in how we pay benefits and how we educate employees. The mindset is very different."

Mr. Seuss noted that company stock is another driver: "This trend really picked up after Enron and WorldCom. Boards became more sensitive to the direction of management. Plans started to think, ‘What's our exposure here, and what can we do about it?'"

Participants in 401(k) plans at Enron Corp., Houston, and WorldCom Inc., Clinton, Miss., lost millions of dollars in company stock investments in 2001 and 2002 when the firms filed for bankruptcy, resulting in many lawsuits.

Toni L. Brown, senior vice president and manager of Callan Associates' San Francisco and Chicago offices, said: "Company stock has had an impact on fiduciary awareness. Some plans have eliminated restrictions, some have imposed a maximum amount a participant can hold, and we have seen almost every client with company stock take a look at their policy," said Ms. Brown.

Another key reason to involve treasury officials in defined contribution decision-making is the increased amount of assets in those plans, Mr. Seuss noted.

"And also, there is increased concern by the plan sponsor about investment decisions individual participants are making. Sponsors are asking themselves, ‘Are participants being successful?'" said Mr. Seuss.

DC plan providers have also observed the trend toward including treasury officials in 401(k) decisions and deem it a positive move.

Laurie Nordquist, executive vice president at Wells Fargo Institutional Trust Services, Minneapolis, said, "DC plans are starting to look a lot like DB plans" in how they make investment decisions.

"People are taking seriously that there is a liability issue. They are creating formal committees. It's becoming a very formal structure, and it's even happening with smaller plans," said Ms. Nordquist. As a result, that brings more treasury and financial people into the process. "It's good for them as plan sponsors and as providers because it keeps us on the same page," she said. "A finance group is going to have a lot of expertise on pure fund selection. And if you have that process in place, you are less likely to add the fund of the day. It's about discipline and objectivity," she said.