Wal-Mart Stores Inc. introduced custom target-date funds to its more than 1 million 401(k) participants, following an unusual selection process.
Nathan Voris, senior manager, global benefits design at Wal-Mart, Bentonville, Ark., described the beginning of the vendor-selection process this way: “We basically read every paper written about target-date funds and if we thought they were interesting … we contacted them.”
The plan has about $10 billion in assets.
Mr. Voris discussed the process during a presentation at Pensions & Investments' West Coast Defined Contribution conference, held Nov. 1-3 in San Francisco.
To be considered, he said, the firm had to be a fiduciary; academically focused; and in the asset allocation business for a while. Wal-Mart officials ultimately chose Ibbotson Associates Inc. after considering 10 vendors. The new funds were rolled out Sept. 4.
One of the most basic decisions was whether to use off-the-shelf or custom target-date funds. Mr. Voris said staff decided on custom funds because of cost, control and diversification.
By choosing custom funds, Mr. Voris said, Wal-Mart could control costs, keeping fees under 30 basis points per fund. Plus, company officials wanted to control the asset allocation, manager selection and the active vs. passive decision, he said.
“Diversifiers” also were critical. “If it's good enough for DB (defined benefit), it's good enough for us,” Mr. Voris said, noting the target-date funds include commodities, Treasury inflation-protected securities, real estate and emerging markets equity and fixed income.
He said one of the advantages of custom funds is “you're designing (the glidepath) around your people,” or around the demographics of a company's own employee base.
One of the decisions more plan officials are wrestling with is called “to vs. through,” whether a plan should be designed to service participants until retirement (“to”) or beyond retirement age (“through”). Because about 100,000 Wal-Mart employees continue to work past retirement age, “'through' for us was the right methodology,” Mr. Voris said.