401(k) restructuring a boon to participants

Semiconductor maker Intersil Corp. has put a charge into its 401(k) plan through a restructuring that will save participants $600,000 a year in fees and offer what plan officials say is more flexibility in meeting employees' retirement needs.

“Our primary concern was employee savings,” said Helene Sanford, director of human resources and compensation, in describing the revamping of the Milpitas, Calif., company's $330 million plan. Like many DC plans, Intersil — whose new lineup took effect in January — reduced fees to participants by negotiating lower-fee share classes.

The share-class switch was only part of the plan's overhaul. Intersil changed record keepers, moving to Putnam Investments, Boston, from T. Rowe Price, Baltimore. It dropped T. Rowe Price as the manager of its target-date portfolio, stable value fund and self-directed brokerage account, replacing it with, respectively, BlackRock Inc., Putnam and TD Ameritrade. Intersil also replaced five core funds.

Intersil officials began thinking about a plan revision nearly two years ago following questions from employees about lifetime income options and discussions with the plan's investment adviser about helping employees guard against outliving their retirement assets.

“A lot of employees began asking about in-plan annuities,” said Ms. Sanford, whose company doesn't have a defined benefit plan. “As we talked to more and more employees, we learned that people weren't sure how it was going to work out in retirement. They weren't sure what amount they should withdraw each year” after they retired.

The average employee age is 48 and the average tenure is 14 years, Ms. Sanford said. The plan has 950 active participants and 829 participants who are retirees or ex-employees. The participation rate is 92%, and Intersil auto enrolls all new employees. The average annual deferral rate is 9.9% of salary, and the average balance is $184,764, she said. Intersil matches 100% up to 6% of an employee's salary, and the match is available for employees after one year of service.

“If you look at the plan for assets and accumulation and participation, the plan did well,” said investment adviser Jason Chepenik, managing partner of Chepenik Financial Services, Winter Park, Fla. “Are people on track to succeed for income replacement? We didn't think so.”

Although Intersil hasn't made a commitment for an in-plan annuity — “we are still considering it,” Ms. Sanford said — the restructured 401(k) plan has made it easier to do so.

For example, Putnam's record-keeping platform will be able to accommodate such a strategy, she said. And because New York-based BlackRock offers an in-plan annuity through its LifePath Index target-date family, Intersil added LifePath and cut T. Rowe's target-date family.

Ms. Sanford said Intersil had been pleased with T. Rowe, but wanted cheaper fund classes and the flexibility to pursue the in-plan annuity option. T. Rowe was unwilling to develop an in-plan annuity, she said. Bill Benintende, a spokesman for T. Rowe Price, declined to comment.

Intersil issued an RFP in May 2012, and eight firms responded. The list was whittled to three semifinalists — Putnam, T. Rowe and Fidelity Investments, Boston. In the end, it was a contest between Putnam and Fidelity. “We felt we would be a bigger fish in Putnam's sea,” Ms. Sanford said. “We figured our employees would get better service.”

Intersil chose Putnam in July and began promoting the changes to participants in November. “I've been through four of these (conversions) in various jobs over 20 years, and this was the smoothest,” Ms. Sanford said.

Some employees expressed concern about switching record keepers, saying they were happy with the returns of funds in the old plan, Ms. Sanford said. “We pointed out that we had many of the same funds with lower fees” for the revised plan, she said.

The revised Intersil 401(k) plan retained many of the investment styles and strategies of the former plan, including a three-tier system of a target-date portfolio, core funds and a self-directed brokerage account. Most of the core funds are actively managed. Intersil doesn't offer collective trusts or separate accounts.

Among the 11 core funds that Intersil retained with lower-price share classes, one is a bond fund, PIMCO Total Return; one is a small-cap fund, MFS New Discovery; and two are international funds, American Funds EuroPacific Growth and Wells Fargo Emerging Markets Equity.

Intersil retained four large-cap domestic equity funds at lower fee classes — the BlackRock Equity Index, Columbia Trust Dividend Opportunity, Invesco Comstock and J.P. Morgan Large Cap Growth funds. It also switched to lower-price share classes for the Eagle Mid Cap Growth Fund, the Waddell & Reed Science & Technology Fund and the BlackRock Extended Equity Market Fund. The plan kept the Templeton Global Bond Fund at the same share class.

Intersil dropped the Vanguard Intermediate Term Bond Index Fund, Goldman Sachs Mid Cap Value Fund, AllianceBernstein Small-Mid Cap Value Fund and Royce Low Priced Stock Fund. They were replaced, respectively, by the Western Asset Core Plus Bond Fund, midcap Victory Established Value Fund, Goldman Sachs Small Cap Value Fund and midcap Putnam Capital Opportunities Fund.

Intersil also dropped the balanced Income Fund of America from American Funds, first mapping the assets into a Putnam money market fund and then into BlackRock target-date funds that most closely matched individual participants' ages.