Hilton Worldwide remodeled its defined contribution plans, with total assets of $896.5 million, by restructuring the investment lineup, cutting costs and changing its record keeper and investment consultant.
The alterations took effect Aug. 1, and promise to save the hotel chain an estimated $500,000 annually in administrative expenses, said Mary Nell Billings, Hilton's director of benefits-the Americas, based in Memphis, Tenn.
The new lineup features 11 core funds from seven managers vs. the old lineup of 15 core funds from 12 managers. All but three of the old lineup's core-fund managers were replaced.
The new program also offers a target-date fund series and self-directed brokerage account, as did the old lineup.
Ms. Billings, who joined McLean, Va.-based Hilton in August 2010, began working with other company officials late that year to review and simplify Hilton's retirement program.
“The first thing we did was a compliance review, and we also did a fee review,” said Ms. Billings, who had been manager of employee benefits at FedEx Corp., Memphis. “We decided there was an opportunity for improvements in internal controls and reductions in fees.”
Hilton issued an RFP for record keeping as well as an RFP for investment consultants for its three DC plans — an $883 million 401(k) plan and two smaller plans — and two defined benefit plans. Mercer handled the record-keeping search while Curcio Webb ran the consultants' search.
Hilton picked T. Rowe Price Retirement Plan Services in early January to replace MassMutual Financial Group as record keeper following a five-month search.
T. Rowe Price was chosen in part because the firm is a record keeper for DC plans of some of Hilton's larger competitors, Ms. Billings said, and company executives determined the firm best understood the needs of retirement plans in the lodging industry.
T. Rowe Price's target-date fund series will replace American Century's Livestrong series; and the firm also will offer a brokerage window option, replacing one previously offered by MassMutual.
Hilton also selected Towers Watson & Co. to be investment consultant for the three DC plans and the two DB plans, which have a combined $319 million in assets.
Towers Watson had been the consultant for Hilton's DB plans, while Alliant Retirement Services had been consultant for the three DC plans. The DB plans were unaffected by the DC investment lineup changes.
The new investment choices and managers are the same for all three DC plans, except one of the small plans doesn't offer a brokerage window.
New funds are three Vanguard index funds — Extended Market, Total International Stock and Total Bond Market — as well as the actively managed T. Rowe Price Growth Stock Fund and T. Rowe Price International Stock Fund.
In addition, Hilton now offers the CRM Small/Midcap Value Fund from Cramer Rosenthal McGlynn LLC; the Dodge & Cox Stock Fund; and the William Blair Small-Mid Cap Growth Fund. All are actively managed.
Funds dropped from the previous lineup were: Perkins Mid Cap Value Fund, Allianz NFJ Small Cap Value Fund, MFS Value Fund, Mainstay Large Cap Growth Fund, American Funds Capital World Growth & Income Fund, American Funds EuroPacific Growth Fund, Henssler Equity Fund, Columbia Acorn Fund, Neuberger Berman Genesis Fund, Invesco Van Kampen Small Cap Growth Fund and the Vanguard Intermediate Term Treasury Fund.
The only holdovers from the old lineup are a stable-value fund from MassMutual, the Vanguard S&P 500 Index Fund and the PIMCO Total Return Fund. Both the Vanguard and PIMCO funds now are in institutional share classes.
Three other core funds are institutionally priced, and Hilton will continue to seek lower-priced shares, Ms. Billings said.
For now, Hilton doesn't offer collective trusts or separate accounts. “We'll look at it in the future, but we thought it would have been a little bit much all at once,” she said.
Also as part of the restructuring, participants may only have one loan from their 401(k) plan outstanding at any time. Previously, Hilton allowed two loans, although outstanding loans under the old system were grandfathered into the new system.
Hilton decided the new policy would reduce potential compliance concerns “due to the administrative complexity associated with offering multiple loans,” Ms. Billings said. “We found that we were one of the few in the hospitality industry that allowed two loans.”