When Halliburton decided to separate its KBR unit and establish the construction and engineering business as a standalone company, it faced a daunting task: Culling out $8 billion from 16 retirement plans that were invested in common trusts. What made the split especially challenging was the fact that the $22.5 billion, Houston-based oilfield services giant eschews mutual funds, preferring separately managed accounts with more than 20 investment managers, explains Sharon Parkes, director of trust investments. "Companies that invest in mutual funds for 401(k)s can just tell the fund company what needs to be done, and have them do it," Parkes notes.
Well before the IPO, the company established separate plans for KBR Inc. employees and mirrored the Halliburton investment options, so that the accounts were comparable by the split-off date in April 2007. State Street Bank & Trust Co., the trustee and custodian, created a new master trust for the KBR plans.
One key factor stressed when planning strategy was minimizing the effects on participants. "Employees were able to make contributions, take withdrawals and transfer funds throughout the process," Parkes says. Meanwhile, "the custodian, investment managers and my team did the heavy lifting." Starting in January 2007 and continuing through February, the process worked like this: For each of the 13 investment options, a ratio was calculated reflecting each plan's investment in the option. Investment managers stopped trading for three days to allow all trades to settle. Then each of the individual stocks and bonds were divided and KBR's securities reregistered according to the ratios they had developed earlier.
Each morning, four members of Parkes' team and a KBR representative would speak to State Street to verify which transactions had been processed the previous night and what could be expected that day. "The whole thing went off surprisingly well," says Parkes.