Art by Chris Buzelli
The Hearst Corporation’s 401(k) plan until 2008 was like many other corporate plans at the time—simply part of its benefits package, not an asset that needed to be managed with the same scrutiny as the defined benefit (DB) plans, which closed in 2011.
Roger Paschke, vice president and chief investment officer (CIO) for Hearst, and his investment team continue to manage those DB assets. But they have become increasingly focused on enhancing the defined contribution (DC) plan, as it is the only active retirement plan available to the company’s employees.
“We felt it was incumbent upon us to insure that it was as good a plan as we could make it—managing the DC assets as effectively as the DB assets—in other words, making the DC plan like the DB plan,” Paschke says.
In 2015, Hearst worked with Morningstar and UBS to create and launch a new series of index target-date funds (TDFs), with the employer as the seed investor. Paschke says these TDFs have outperformed similar products of all other target-date fund managers. The cost saving from these funds versus what the employees had been paying will result in approximately $250,000 of additional retirement fund assets for a typical Hearst employee over a 30-year career span.
At the beginning of 2016, the investment and benefits teams issued two requests for proposals (RFPs). One was for a recordkeeper/administrator and the other for a trustee. According to Paschke, “We wanted to be sure that the platform we were running would be able to support a new series of white label investment options blended in with the TDFs and some index options. We wanted to make sure we had sufficient support and experience from our partners with managing plan assets such as this.” The corporation selected Voya Financial for its platform administration and BNY Mellon as trustee for the plan.
Why White Label Funds?
Hearst’s goal was to give its employees in the 401(k) plan the benefit of the fund managers used in the DB plans and Hearst Foundation portfolios, through a cost-effective, simple-to-understand investment structure.
“These are funds that our employees cannot get access to. Many are closed to new investors, or many require multi-million minimum investments, so typical Hearst employees have no hope of getting access to the managers on their own,” Paschke says.
Hearst’s Karen Alsup, managing director of institutional investments, for the team adds, “There was absolutely no overlap between funds or managers in the DB and DC plans, and we really felt that to be a problem. But what was really driving us was, when I searched for the funds that were formerly in the DC plans, none of the managers were in the top 10.”
“We wanted to bring these managers, these strategies, this performance and these fees to all of our employees regardless of whether they are in the DB plan or only in the DC plan. White labels, from our perspective, were the only way to do it,” Alsup says.
Prior to the new lineup that went live in January, the investment team thought the participants often had trouble differentiating between value and growth funds, for instance. However, by replacing such funds with white label funds and labeling them in a clean and simple way—e.g., U.S. large cap—they believe making investment choices has become clearer for participants.
The original plan drivers projected for 2016 were accomplished, Paschke says. They included simplifying the investment lineup; adding better performing funds; reducing the cost of the plan—it came down by about one-third—by using lower-cost index funds and leveraging the fee savings available via managers on the DB side; and, lastly, making the plan more transparent.