Executives at Hitachi Data Systems' $272 million 401(k) plan have cut the number of investment options, a turnaround from years of adding options that ultimately proved too unwieldy for the plan's participants.
With the streamlined investment menu in place, Hitachi's retirement committee now is examining whether passive target-date funds might be a better choice than its current active target-date funds. That study could take a year.
“We always want to look at new things,” said Levent Arabaci, vice president of human resource at the information technology company based in Santa Clara, Calif. “We've had quite a few changes in the last six months. We're going to let them simmer for a while.”
Hitachi executives also are examining funds that bundle several inflation-protection investments, such as TIPS, REITs and commodities. “We'll need to do more analysis,” he said.
The decision to reduce the number of investment options came after a detailed review that found continued diversification was producing unwanted side effects.
“The primary factors related to overlaps (of investments) and performance issues,” Mr. Arabaci said. “It was creating a lot of confusion among employees.”
Hitachi, which froze its $100 million defined benefit plan three years ago, had added new investment choices to its 401(k) plan slowly over the last three to five years. Some were added “due to the downturn in the market,” he said. “We wanted to give employees some "safer' options.”
Hitachi's retirement committee, which meets quarterly, had discussed the investment lineup over the last 18 months. “Our record keeper (Fidelity Investments) told us 15 to 20 (options) is typical for its clients. That confirmed our concerns,” Mr. Arabaci said.
Hitachi eliminated eight options and added two others, giving participants a minimum of 60 days to move out of funds being dropped. The transition was completed in December. The changes also affect Hitachi's $47 million deferred compensation plan, whose options are similar to those of the 401(k) plan, Mr. Arabaci said.
Hitachi communicated its 401(k) option restructuring through meetings with employees at corporate headquarters, webinars, a letter to employees' homes and e-mails to employees at their offices.
“This ensured that everyone is informed one way or another,” he said. “We do not hold back when it comes to communication. The more, the better.”
In addition, representatives from Fidelity met with employees at seminars at the corporate headquarters.
“So far, no news is good news,” said Mr. Arabaci, adding that “I have not heard from a single employee” complaining about the revised options.