RESTRUCTURING: When they launched their 401(k) recordkeeper search, Brown-Forman Corp.’s designated committee members knew they wanted to eliminate the use of revenue sharing in the plan’s investments wherever possible. The plan’s then-provider relied wholly on revenue sharing to pay its recordkeeper fees.

“Doing a recordkeeper search brought everything back to the drawing board,” says Tom Stachnik, manager of treasury planning and analysis at the distiller of liquor brand, such as Jack Daniel’s Tennessee Whiskey, headquartered in Louisville, Kentucky. “We could take a fresh look at everything. We just did not want revenue sharing and those sorts of issues to cloud [fee-fairness concerns],” he says. Members of the plan’s recordkeeper-search committee worried about potential unfairness for participants with higher balances and/or those who invested heavily in mutual funds that paid higher levels of revenue sharing than did other plan investments.

When Brown-Forman shifted to new recordkeeper Wells Fargo Institutional Retirement and Trust last August, the company also changed how administrative fees were paid and lowered participants’ investment fees substantially. The employer’s plan now has only two funds that utilize revenue sharing: a small-cap equity fund and a total-return fund. In both cases, the revenue sharing gets credited back to the participants who invest in those funds.

The $450 million plan has 2,950 participants and an 89% participation rate. Brown-Forman provides a dollar-for-dollar match on the first 5% of salary deferred, and participant deferrals average 8%. The company also has an active defined benefit (DB) plan that utilizes a final average pay formula, but in June 2012 it switched to a cash-balance plan for new hires.

As part of the changes, the company decided to start paying for recordkeeping and consulting costs itself. “We felt it was a lot cleaner and then we could get the best investment-fee options across the board,” Stachnik says. Recordkeeping and consulting fees work out to about $100 per participant, he says.

Brown-Forman also replaced several institutional-class mutual funds with collective investment trusts (CITs), in a move that has lowered the weighted average net expense ratio for participants—excluding company stock—from 61 basis points (bps) to 36 basis points. It now uses collective trusts for equity investments such as index funds, large-cap value and large-cap growth, along with the JPMorgan SmartRetirement Passive Blend Funds—target-date funds (TDFs) that cost participants 29 basis points each. The plan still has mutual funds for four equity categories: mid-cap growth, mid-cap value, small-cap blend, and international growth and income. 

Judy Ward

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