Hewlett-Packard Co. executives have revamped the company's $14 billion 401(k) plan, eliminating mutual funds as standalone options, offering more separate accounts, dropping stable value and lowering fees.
The restructuring followed Palo Alto, Calif.-based HP's acquisition of Electronic Data Systems Corp. and the merger of the two companies' defined contribution plans.
“We wanted to take the best of both worlds,” said Gretchen Tai, director of investments, describing her company's decision to use some of the investment options from each plan.
Rather than require participants in the $3.7 billion EDS plan to accept the choices offered in the old $10.3 billion Hewlett-Packard plan, “it was always our philosophy that the best options of the different plans would be preserved,” Ms. Tai said.
The planning, execution and employee-education effort took time. Although Hewlett-Packard closed its purchase of Plano, Texas-based EDS in August 2008, the consolidated plan took effect at the beginning of 2011.
HP officials spent the time in between not only analyzing the elements of both DC plans but also developing a strategy to reduce costs, consolidate record keepers and reduce redundant options.
HP has achieved “significant savings” by consolidating providers and using the combined plan's size to negotiate lower fees, said Ms. Tai, who declined to quantify the savings. For some investment options, Ms. Tai said HP uses the same managers for its DC plan as its defined benefit plan, but she declined to identify the managers or the assets they manage.
(The DB plan has assets of more than $10 billion, representing the combination of the separate HP and EDS plans. The old HP plan was closed to new employees at the end of 2007; the EDS plan was closed to new employees at the end of 2008.)
The combined 401(k) plan has 19 investment options available through five tiers. By contrast, the old Hewlett-Packard plan had three tiers of options with 29 investment choices; the EDS plan had four tiers with 15 options.
“We wanted it (the combined plan) to be simple to understand but also to have sufficient diversification,” Ms. Tai said. “The key is not the number of choices — it's the kind of choices.”
From the EDS plan, HP imported a self-directed brokerage window and passively managed investment options. From the old HP plan, the company included actively managed core options as well as “extended choice” opportunities to invest in Treasury-inflation protected securities or long-term bonds.