Case Study: Governmental Client
Creative Thinking Inspires “Age-Based” Portfolio and Remarkable Plan Participation
In 2006, Bidart & Ross began working with a Municipal Client with a defined contribution plan in developing a comprehensive investment program that would gain traction with participants. The Client was interested in providing a wide variety of active and passive options, but was concerned that too many fund choices were confusing participants. Recognizing that participant fund utilization across asset classes would be a key driver for this project to succeed, we knew this plan required some creative thinking in order to find a solution.
Plan review exposes risk and opportunities in fund menu
Our initial work centered on a thorough review of the client’s current menu of funds to evaluate the risks and opportunities associated with making changes to their investment program. Our analysis uncovered the following problem areas:
- A high degree of asset class redundancy in the funds offered
- Insufficient diversification in the fund menu
- Too many fund choices (there were 54 initially)
- No coherent strategy for fund selection
- Limited availability of index funds
- Poor utilization of funds by participants across asset classes
Action: Examine, Reduce and Reallocate
Following our consultation, our client undertook the following actions to improve their investment program:
Phase I
- A comprehensive analysis was conducted to determine participant exposure to different asset classes
- The plan’s Investment Policy was updated to guide fund selection
- Additional asset classes were added to fill gaps in the plan’s menu
- The number of investment choices was reduced from 54 to 25 funds
- Style specific small cap and mid cap index options were included to complement the actively managed funds offered in these asset categories
Phase II
Recognizing that participants needed assistance to properly allocate their portfolios, age-based portfolios were created using the plan’s “best in class” menu of funds. Portfolio design included automatic rebalancing throughout the year and as a participant moved from one age threshold to the next, they would be notified by the record-keeper, through their account representative that they need to reallocate to the next age appropriate model.
Bidart & Ross assisted the client’s record-keeping/administrator in creating communications to formally introduce the fund changes and the “age-based” model portfolio concept. Demonstration meetings were scheduled so employees could easily select a portfolio solution for their needs without having to make individual fund choices themselves.
Results: Participation “Eclipsed Expectations”
Since its introduction, the number of participants adopting the new “age-based” model portfolio solutions has eclipsed expectations. Fund utilization has gone up and participant satisfaction with the plan has improved. Education specialists who conduct one-on-one meetings with participants have found the new investment program easier to communicate and it has been met favorably by participants. Additionally, account representatives have commented that they can now spend more time helping participants find ways to save more for retirement.
FINE PRINT:
Please Understand:
Due to the confidential relationships we enjoy with our Clients, only broad industry categories are used in these Case Studies. However, all Case Studies are based upon factual events and results attained with Bidart & Ross Clients.