Total Plan Assets: 401(k): $127 million; DC Pension: $76 million
Participants: 650
Participation Rate: 98.9%
Average Deferral Rate: 7%
Default Deferral Rate: 6%
Default Investment: InvestMap model portfolios
Automatic Enrollment: Yes
Automatic Escalation: Yes
Employer Contribution: 50% up to 6% + a DC pension plan

OOCL (USA) Inc., a provider of logistics and transportation services in the U.S., has acted on several plan investment, design and governance decisions that it envisions as being a “new era” of world-class corporate governance for Employee Retirement Income Security Act (ERISA) defined contribution (DC) plans.

Besides its “401(k) Savings Plan,” with its employer match of 50% up to the first 6% of employee salary deferrals, it has a “Defined Contribution (DC) Pension Plan,” with eligibility on day one of employment. The plan is fully funded by the company, with contributions made twice a year using a formula of base pay received times years of service contribution rate.

In 1999, OOCL terminated its pension plan, replacing it with its DC Pension Plan. Veronica Thompson, the company’s vice president, human resources and administration, says, “We wanted to maintain a second plan for our employees, a plan that was portable, with a formula that was easier to understand, and by calling it a DC Plan, we were giving a label to it that people could understand. But it is a pension plan because, even with your benefit payment options, you do have a choice of an annuity.”

According to its 3(38) advisor, Patrick J. Smith, managing director and chief investment officer at Cook Street Consulting in Greenwood Village, Colorado, “The backstory behind the pension name was that OOCL surveyed participants and the outcomes demonstrated how important the pension component was to their employees. It’s an interesting nuance and was a completely conscious decision.”

The company reorganized towards the end of 2013 through the first quarter of 2015, when its California headquarters and many service-level positions from other North America locations moved to South Jordan, Utah, to establish a new North America headquarters and major service center. In doing so, Thompson says several employees were unable to relocate. The turnover rate before this time was approximately 3%, and longevity like Thompson’s, which is 30 years, was common. To infuse nearly 75 new employees or 55% of the office population, many of whom are millennials, in one swoop was not business as usual for the company.

With the OOCL workforce changing, more so than ever, individuals were looking for plans that were more portable. The DC Pension Plan has a different flavor from the 401(k) plan and its contributions are only on behalf of the company, so individuals are in awe of their retirement plan offering, says Thompson. In addition, Thompson says, “People have a sense of ownership from the day they come through the door.”

In its 401(k) plan and DC Plan, OOCL has re-enrolled participants to a new qualified default investment alternative (QDIA) solution, called InvestMap. InvestMap is a sophisticated tool that offers an easy, professionally managed option to the investment decision. It is a customized age-based, asset-allocation strategy built from the 18 individual core fund options held within the plan. By creating a custom, risk-based target date allocation strategy, participants are able to further personalize their investment approach through the election of a conservative or slightly aggressive adjustment versus traditional target date funds (TDFs).

“It’s essentially a custom risk-based target date fund that has similarities to a TDF as well as a risk-based model or managed account which can be customized for participants. One huge compelling aspect to it is that there is no additional charge at the participant level—participants don’t pay the 45 or 50 basis points that a lot of managed account providers can see. They are getting a more optimized versus a traditional proprietary target date fund.”

OOCL engages in a unique oversight process that goes beyond traditional best-practice protocols for corporate DC plan sponsors: It engages a 3(21) investment consultant to provide oversight of its 3(38) adviser.

Thompson says, “One thing we’ve always done is looked to be totally transparent and ensure there are checks and balances for what we do and to be sure we do these things at the highest level. But as a committee, we don’t have the same depth and breadth of knowledge in the investment world, so we lend some of those responsibilities to our investment manager. But at times we have to say, OK, how do we make sure that our investment manager is doing the right thing? The investment of having this added service puts another layer of comfort and checks and balances onto our platform.”

Smith says this is uncommon in today’s DC landscape, but “in regard to due diligence and documentation, having a 3(21) adviser audit the work of a 3(38) adviser is a best practice—and is another element of OOCL’s structure that goes above and beyond those that we consider to be today’s commonplace best practices for corporate ERISA DC plans.” —Judy Faust Hartnett

 

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