INVESTMENT DIVERSIFICATION: The 401(k) plan for Swiss International Air Lines Ltd.’s U.S. employees had some pretty strong stats: 95% participation, an 11.5% average deferral rate and an average participant balance of approximately $156,000. Still, plan officials realized that participants’ investment diversification needed some help.
For instance, just 20% of plan assets had been invested in target-date funds (TDFs) as of December 2013. “The overall target-date fund usage within our plan was below average, and we weren’t seeing participants periodically rebalancing their accounts or adjusting target allocations, despite our aging work force,” says M. Christine Javora, human resources (HR) specialist, benefits/systems, at the airline’s offices in East Meadow, New York.
Swiss International worked with its adviser, AEPG Wealth Strategies, and its recordkeeper, Empower Retirement, to analyze how well participants had allocated toward equities with respect to their ages. The report showed that some participants “may not have been positioned correctly,” Javora says.
So the plan decided to re-enroll active participants in December 2013, placing them in the default, J.P. Morgan SmartRetirement target-date funds, unless the participants opted to choose their own investments. “Our participants have primarily stayed the course with their investment allocation over the past couple of years, which led us to understand that many of [them] are not actively managing their accounts,” she says. “The target-date funds help give participants some active management and continuous rebalancing, to better keep them positioned in the market, based on their age.”
The re-enrollment increased target-date holdings substantially and improved participants’ diversification. “The plan went from having 20% of assets invested in target-date funds to now having 46%,” Javora says. Interestingly, the plan did not shift these participants’ deferral rates as part of the re-enrollment. “Our current average savings rate was already above 10%, so we chose to not change current deferral rates,” she adds. The $32.4 million plan has a dollar-for-dollar match up to 4% of pay an employee defers.
Before the re-enrollment, participants received written materials and targeted emails explaining the change, and Swiss International also held group meetings. The company aimed to convey that the change “was a means of helping participants to actively engage themselves in their 401(k) plan management and investment process,” Javora says. “Those who were actively engaged were then pushed to review their accounts and ensure that the way they were currently invested continued to be satisfactory to their goals.” Those who chose to do nothing got defaulted into a target-date fund, and, as Javora says, “then received help to better align their investments.”
« 2015 PSOY – Showplace Wood Products, Inc.