United Technologies Corp., Hartford, Conn., this week will introduce two core options in its 401(k) plans that are designed to reduce portfolio volatility and address the impact of inflation.
The introduction of a multimarket risk-parity option and an inflation-sensitive assets option to the plans' core menus completes a three-year overhaul of investments and plan design for the plans with aggregate assets of $21.2 billion, said Robin Diamonte, the company's chief investment officer.
Adding the two investment options coincides with the launch of a financial wellness campaign. “We realize there's more than just saving for retirement,” Ms. Diamonte said. “We are focusing on new employees who don't have a (defined benefit) pension. We want them to be aware so they can max out their savings rate but not max out their credit cards.”
United Technologies officials began considering restructuring the DC plans in 2009. The first big changes took place in 2011 with the offering of a custom target-date fund series, the trimming of core investment options and the adding of a mutual fund self-directed brokerage account. In 2012, the DC plans introduced a lifetime income option.
The changes were enacted after the company had closed its defined benefit plan to new employees starting in 2010, said Kevin Hanney, director of pension investments. The DB plan is still open to employees hired before 2010. It had $24.6 billion in assets as of April 30.
The DC changes affect the two 401(k) plans equally. The plan for salaried workers had $18.9 billion as of April 30, and about 95,000 active and non-active participants. The plan for union workers had about $2.3 billion as of April 30 and about 22,000 active and non-active participants.
The risk-parity option is a “natural extension” of risk-parity investing that has been done by the defined benefit plan since 2005, Ms. Diamonte said.
It was created in-house and holds units of existing investment vehicles managed by AQR Capital Management LLC, Greenwich, Conn.; Bridgewater Associates LP, Westport, Conn.; Invesco Ltd., Atlanta; and State Street Global Advisors. Each manager has a different risk-parity strategy.
“There is some overlap between the investment advisers managing risk-parity portfolios in the DB plan and the new investment option in the DC plan, but the lineups aren't identical,” Mr. Hanney said.