Bemis cuts investment overlap, saves on DC plan expenses

Bemis Corp., a company that specializes in flexible packaging, has packaged the restructuring of its defined contribution plans to reduce investment-option overlap, increase diversification, simplify choices and save participants more than $700,000 a year combined in expenses.

The Neenah, Wis.-based manufacturer topped off its investment menu changes with a companywide re-enrollment that met plan executives' goals of putting participant accounts in more diversified portfolios, primarily by increasing participants' allocations to target-date funds, said Melanie Higgins, director of global retirement plans.

The changes took effect July 1, and Ms. Higgins said employees accepted the changes with few complaints. “If you communicate early and often, you won't get the pushback from employees,” she said. The education campaign started in March 2013.

Bemis executives began reviewing the investment menus of the three DC plans — with aggregate assets of $786 million — in June 2012. By the end of that year, they had decided on the new investment options. (The menus are the same for each plan).

The company also decided to conduct a re-enrollment of all participants rather than use a mapping strategy. “We didn't want to cause concern among participants with so many changes,” Ms. Higgins said.

In raw numbers, the changes between the old lineup and the new lineup weren't extensive — moving to seven core funds and one target-date series from 10 core funds and one target-date series. However, the changes were comprehensive, and affected all DC plans equally:

• The old lineup's target-date series was actively managed and contained six funds at 10-year intervals. The current series is a mixture of active and passive management with 10 funds at five-year intervals. J.P. Morgan Asset Management, record keeper for all the Bemis DC plans, managed both target-date series.
• The fees for the individual target-date options declined to a range of 31 to 39 basis points from 76 to 101 basis points.
• Bemis dropped all funds that were subject to revenue sharing. Plan executives had fiduciary concerns over what would happen if the funds produced more revenue than necessary for administration, Ms. Higgins said. “Ultimately, we decided it was more fair to charge everyone the same,” Ms. Higgins said of a $38 annual administrative fee per participant. “It's more straightforward.”
• Bemis exited a stable value fund offered by J.P. Morgan and moved to a Vanguard money market fund. “We had the stable value fund for many years,” she said. “There are a lot of disclosures and complexities. Our employees didn't understand the risk.” Until 2006, when a target-date fund series took its place, the stable value fund had been the DC plans' default option.
• The new lineup offers two large-cap equity options — the actively managed Lazard U.S. Strategic Equity Portfolio, benchmarked to the S&P 500 total return index, and a passively managed commingled trust fund from J.P. Morgan, benchmarked to the S&P 500 index. Previously, the plans had offered five large-cap funds — both passive and active — including two growth and two value funds, which confused participants, Ms. Higgins said.
• Bemis kept its passively managed bond fund, the BlackRock U.S. Debt Index fund. However, it switched to a lower-fee class, switching to a non-revenue sharing version and reducing the expense ratio to seven basis points from 16 basis points. Bemis also kept the actively managed large-cap American Funds EuroPacific Growth Fund but moved to a non-revenue-sharing arrangement and cut the fees to 50 basis points from 85 basis points.
• The old lineup had two small-cap equity options that were replaced in favor of the Russell Equity II Fund, an actively managed smidcap fund from Russell Investments. The current lineup also features the Principal Real Diversified Real Asset Fund, a multiasset fund whose investments include inflation-index bonds, real estate investment trusts, publicly listed infrastructure companies and floating-rate debt.
• Bemis also negotiated lower fees for its managed account program, run by J.P. Morgan. Depending on the size of a participant's account, annual fees were reduced by 10 to 15 basis points.

The changes in allocations from the re-enrollment were dramatic. For the $701 million plan for salaried and non-union hourly workers, the allocation to target-date funds surged to 53.5% just after re-enrollment from 13.8% just before. For the $72 million union worker hourly plan, the target-date allocation grew to 69.8% from 25.4%.

Re-enrollment played a role, along with the investment menu changes, in weaning participants from what Bemis executives believed was a heavy reliance on stable value. Before re-enrollment, 13% of the total assets in the salaried/non-union hourly plan was in stable value. After re-enrollment, 2.5% of assets immediately moved to the money market fund, the stable value replacement.

For the union plan, stable value accounted for 24.2% of assets. After re-enrollment, 3.7% of assets moved to the money market fund.

Re-enrollment didn't cause a big change in fixed-income allocations. Previously, 7.5% of assets in the salaried/non-union hourly plan were in bonds; immediately afterward, the allocation was 5.6%. For the union hourly worker plan, the bond allocation went to 5.2% from 6.8%.

Ms. Higgins said the investment menu alterations and the re-enrollment represent part of the continuum of change that Bemis has been making in its DC plans since 2005, prompted initially by revisions in its defined benefit plans. “We asked ourselves: What is the best method going forward to maximize participation?” Ms. Higgins said.

Bemis closed its $411 million defined benefit plan for salaried and non-union hourly employees to new entrants in 2005. The plan was frozen on Dec. 31, 2013.

The $194 million defined benefit plan for union employees is closed to new entrants at most Bemis plants. At most Bemis union locations, new hires are eligible for profit sharing, Ms. Higgins said. “If a union employee is eligible for a defined benefit, they are not eligible for profit sharing — and vice versa,” she added.

Among the early DC plan changes, Bemis added a profit-sharing provision in 2006 to both plans: participants who contribute 3% of their salary are eligible for profit sharing of 2% to 5% each year depending on company performance.

The profit sharing is separate from a corporate match, which is offered only to participants in the salaried/non-union hourly worker plan. The match is 50 cents on the dollar for the first 4% of salary contributed pre-tax, then 25 cents on the dollar for the next 4% of salary contributed pre-tax.

Bemis also auto-enrolls new hires at a 3% deferral rate.

Beginning in 2008 for the salaried/non-union hourly worker plan and in 2012 for the union plan, Bemis conducted an annual “sweep” of all active, profit-sharing-eligible participants who were contributing less than 3% of their pay. All of these participants were auto-enrolled at a 3% default rate, and they are re-enrolled each year, if they deferred less than 3% of their pay, Ms. Higgins explained.

In 2008, Bemis initiated auto-escalation at 1% per year up to a maximum of 8% for the salaried/non-union hourly workers plan, raising the maximum to 10% in 2012. Also, in 2012, Bemis initiated auto-escalation for the union plan at a rate of 1% per year up to a maximum of 10%. Participants in both plans may opt out of auto-enrollment and auto-escalation.