Only a tailored solution would meet the needs of this manufacturing corporation who brought on Russell Investments as their Outsourced CIO (OCIO) to update their plan design and fund menu, and help increase employee participation in the plan. The solution is a real-life example of how a customized, simplified core investment menu can make a difference in employee contributions in the plan.
A Midwest-based corporation with more than 12,000 employees and $930 million in defined contribution (DC) plan assets wanted to hire a delegated investment advisor to manage its DC and non-qualified plans.
Managing the funded status of its closed defined benefit (DB) plans had consumed much of the Investment Committee’s capacity. Even with the support of a third-party investment consultant, the DC plan design had become outdated.
The Committee was concerned that many employees were not saving enough. A retirement readiness report conducted by Russell Investments confirmed that about 65% of participants were not contributing enough to receive the full employer match and most participants were not on track to reach their retirement goals.
The investment menu consisted of several overlapping strategies, with little diversification benefit for their employees. There was significant overlap in holdings between all the passive domestic equity options. The company also offered different investment menu options in the qualified and non-qualified plans and wanted to have greater uniformity in the investment menus across plans.
Investment Outsourcing Guide
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The Plan moved from a traditional consulting arrangement with a different provider, to an outsourced chief investment officer (OCIO) relationship with Russell Investments. We worked through a plan design review with the Committee that led to multiple recommendations designed to simplify participant investment decisions, increase savings behavior, and improve participant asset allocation.
The newly designed individual fund menu consists of six multi-manager funds rather than the nine single-manager funds originally offered but still provides ample opportunity for participants to construct a diversified portfolio, without offering funds with overlapping objectives or holdings.
As the corporation’s OCIO provider with fiduciary responsibility for investment manager and plan menu changes, we helped the Committee increase their fiduciary protection which gave them more capacity to focus on the strategic initiatives that have the largest impact on their employees’ ability to secure a successful retirement. Together we:
- Simplified core fund menu and consolidated the number of options from 9 to 6, while increasing the diversification provided to participants
- Significantly increased employee participation in the target date funds
- Reduced investment expenses by 27%, which translates to participants saving more than $600,000 in investment management fees annually
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