At the Saudi Arabian Oil Co., employees from Saudi Arabia and other Arab nations had a defined contribution plan that offered a limited choice and weak returns, and did not comply with religious principles.
In response, company officials, led by Sheila Rowaily, head of investment management, developed the Idikhar Savings Plan, which enables these employees to pursue more options while remaining faithful to Shariah investing principles.
“Shariah investment options have three main characteristics,” Ms. Rowaily explained in a e-mail interview. “Non-interest bearing investments, limitation on total leverage and strictly socially responsible investment rules.”
The SRI principles include no investing in companies “that are directly active in, or derive more than 5% of their revenue cumulatively” from “prohibited activities” such as firearms, alcohol, tobacco, gambling and pornography, she said.
The challenges were significant — ranging from the absence of investment education materials written in Arabic, to the need for investments to be Shariah-compliant at a company that is 100% owned by the government of Saudi Arabia.
“We translated the educational articles in-house and created local content that the participants could easily relate to,” Ms. Rowaily said.
And the Saudi Arabian Oil Co., also called Saudi Aramco, had to create the Idikhar plan internally.
“There are no Western firms authorized in Saudi Arabia with experience administeringa plan like this,” said the company's application for the Excellence & Innovation Awards. “Employee education and financial wellness issues were particularly challenging given the newness of investment concepts.”
In her e-mail, Ms. Rowaily noted that under the previous plan Saudi employees had fewer choices and smaller returns than U.S. employees of the company, who have a separate DC plan administered by Vanguard Group that offers a range of funds. “By offering equity and fixed-income options to the Saudi employees, we hope that their savings will have the opportunity to grow as quickly as the DC savings of our U.S. employees,” she said.
Until Saudi Aramco offered the Idikhar plan, the Saudi employees' DC plan, the Saudi Riyal Thrift Plan, was basically a money market savings account, Ms. Rowaily said.
“It invested very conservatively in a single fund managed in-house that earned money market rates of return,” Ms. Rowaily explained. “The returns achievable by the original investment fund were very conservative — even more so after a decade of declining interest rates.”
The former plan also wasn't compliant with Shariah principles, “so many employees did not participate in the plan despite a generous 10% company match,” she said.
Introduced in October 2015, the defined contribution Idikhar plan offers seven options, including one for employees who receive the company match but don't wish to invest. (Idikhar participants also have a defined benefit plan.) The sizes of the plans could not be learned.
There are three conventional options: conservative, which provides savings deposit/money market returns; moderate, which offers 40% global equity and 60% fixed income; and growth, which features 75% global equity and 25% fixed income.
There are three Shariah-based options — conservative, moderate and growth — offering the same ratios of fixed income and equity as the conventional options.
To promote the plan, the company employed 30 wealth managers to contact participants in person, via phone and online. “We gave 140 presentations over a four-week period prior to the launch date across the country, and opened nine advisory offices staffed with certified wealth mangers deployed by our service provider to service the participants,” Ms. Rowaily added.
Awards judges were impressed by the scope of the new plan and the company's effort.
“This is a very important innovation for a global DC plan,” wrote one judge.
“This has the potential to make a fundamental change in the DC system in this region of the world,” another judge wrote. ”It seemed like there were some fairly large hurdles, and in getting through those could help others with similar issues.”