True to its corporate mission of home improvement, The Home Depot Inc. has been remodeling its $3.7 billion U.S. and $10 million Puerto Rican 401(k) plans.
The purpose is to add value and cut costs. In fact, the Atlanta-based company has cut expenses in half since 2009. There have been “reductions in record-keeping and investment management fees over time,” said Brant Suddath, director of benefits. He didn't provide specific numbers.
The most recent cost cuts came in February, when Home Depot officials negotiated lower investment management fees with BlackRock Inc. for its LifePath target-date funds.
In addition to hard bargaining, Mr. Suddath said the company uses separate accounts, commingled funds, institutional mutual fund shares and open architecture to keep fees low.
The plans offer a core lineup of 12 options, in addition to the target-date series and a self-directed brokerage window to accommodate participants who want greater access to mutual funds, exchange-traded funds and stocks.
The core options include separate accounts for large-cap, midcap and small-cap growth equities; small-cap value; and stable value. Mutual funds are used for the large-cap and midcap value strategies and for an international blended fund. Index funds for bonds and large-cap equities are offered through commingled funds. The balanced strategy takes a fund-of-funds approach. The target-date series also is in commingled funds.
A company stock fund has been closed to new investments since September 2008 — when it represented 24.8% of total plan assets — to encourage diversification, Mr. Suddath said. It now represents 17.8% of the plans' assets.
The brokerage window, added when the stock fund was frozen, has been used by less than 1% of participants, and represents less than 1% of total assets.
Home Depot executives have been making these changes even though the plans' overall participation rate of 60% is above the 51% average for retail companies tracked by Aon Hewitt, Lincolnshire, Ill., said Alison Borland, vice president for retirement strategy.
Aon Hewitt is record keeper for Home Depot, while Hewitt EnnisKnupp is the company's investment consultant.
“They have been an early adopter of services like quick enrollment and mobile applications” to provide participants with easier access to their accounts, said Ms. Borland.
“They have unique challenges with a mobile workforce that is diverse in race, language and learning styles,” she said. “They know their population very well. They are very deliberate in what they offer.”
Mr. Suddath said there's room for improvement, especially in encouraging younger and newer employees to participate.
For employees eligible for the company match — those who have been with Home Depot for a year and work more than 1,000 hours annually — the participation rate has held relatively steady over the years at 70%, he said.
Home Depot matches a maximum of 3.5% of pay, depending on the participant's contribution. That breaks down to $1.50 for an employee contribution of $1 for the first 1% of salary, then 50 cents on the dollar for each succeeding percentage point up to 5% of pay.
Among employees not eligible for the match, however, the participation rate is 18%, up from 12% before Home Depot adopted a quick enrollment plan in October 2009.
The question was: “How do we get them in that first year to increase their participation?” Mr. Suddath said. “Since we added quick enrollment, approximately 80% of employees enrolling (in the 401(k) plans) are taking the quick enrollment path.”
Quick enrollment allows employees to join through the Home Depot benefits website or with a paper form. For quick enrollment, an employee invests in the target-date fund series, with a “5% before-tax contribution rate that will increase 1% annually up to a maximum of 10%,” Mr. Suddath explained.
Employees can change the contribution and auto-escalation rates as well as their investment options. Compared to the Home Depot plans' regular enrollment process, “quick enrollment allows an employee to enroll without having to make many decisions,” Mr. Suddath said.
Officials decided against employing auto-enrollment in part because it represented “a significant financial undertaking” and in part because plan executives favor participants taking a more active role in building their savings, according to Mr. Suddath. When participants make the choices, “they are more engaged,” he said.
Home Depot also using an education campaign that emphasizes “saving” instead of “retirement,” as a way of encouraging employees “to think long term,” Mr. Suddath said. “We tell them, "Don't leave money on the table.'”
Since early 2011, Home Depot has been offering educational and information websites in Spanish as well as English.
Home Depot also has given participants access to real-time data — including portfolio and investment performance information — on mobile devices.
