Eighteen months after completing a merger with US Airways, American Airlines Group Inc. rolled out two new 401(k) investment menus focusing on consolidation, customization and greater simplicity for its 120,000 participants.
Each of the new investment menus — one for pilots and another for other employees — for the first time features custom target-date funds and white-label passive and actively managed options. They also include self-directed brokerage accounts and managed account options.
Fort Worth, Texas-based AMR Corp. completed its merger with Tempe, Ariz.-based US Airways Group on Dec. 9, 2013, with the US Airways brand ending in late 2015.
The two airlines' 401(k) assets, which totaled approximately $13 billion as of Nov. 1, were brought under a single record keeper, Fidelity Investments, in June 2015, and transferred to the new lineups on Oct. 30.
American Airlines pilots and other employees had been covered under a single plan administered by Empower Retirement, formerly J.P. Morgan Retirement Plan Services. US Airways had four plans — two for pilots and two for other workers — all administered by Fidelity.
Seeing the merger as an opportunity to consolidate and revamp its 401(k) offerings, American Airlines rolled out one 401(k) plan for pilots and another for all other employees. Work on the new plans began in 2013. Replacing five traditional lineups with two custom ones was a “very complicated project” that took time, said Ken Menezes, managing director, treasury, asset management, at American Airlines. In addition to design time, time was required to communicate the changes with employees, he said.
Two of the redesign's “overriding principles” were keeping expenses low and making asset allocation decisions easier, said David Pulford, director, retirement strategy, at American Airlines.
Mr. Menezes said fees — already low in the legacy plans — are generally lower across the new plans. In the new custom target-date funds, for instance, costs were kept low in part by using some index funds, he said.
The new pilots plan features 20 core investment options — nine active funds, 10 index funds and a custom target-date fund series. The new non-pilots lineup features 15 core investment options — nine active, five index and a custom target-date fund series. The five legacy plans had 55 different fund options combined.
The new plans are tiered, with target-date funds making up the first tier, index funds in the second tier, active funds in the third tier and a brokerage account option in the fourth tier.
The target-date funds are a mix of the passive and active strategies offered as the stand-alone options in tiers two and three. The funds' glidepaths are also customized. Most investments were defaulted to an appropriate target-date fund when the plans merged unless specific fund options were selected. Aon Hewitt was the consultant on the glidepaths and also manages them for the plan.