Introductions: Donna Miskin, editor in chief, Treasury & Risk magazine.
Donna Miskin: This year’s moderator for Retirement and Benefits is Carl Hess, the global practice director of Watson Wyatt Investment Consulting. For more than two decades, Carl has consulted with many of the world’s largest corporate, government, nonprofit and union pension funds as well as with other institutional asset pools. His particular areas of expertise include risk budgeting, asset allocation, asset liability management, retirement program, finance and governance.
Carl is a fellow of both the Society of Actuaries and the Conference of Consulting Actuaries and a Chartered Enterprise Risk Analyst. He’s a graduate of Yale with a cum laude degree in logic.
Carl Hess: Thank you very much. I wish I had more logical results to talk to you about retirement plans in the year 2008 and the beginning of 2009, but it’s quite the world we live in. All our finalists, and indeed, all of you who have had to work with employee benefit plans really are doing good work because, Lord knows, we all need it as a society.
I’m afraid many of you can wince at the numbers. Defined benefit pension plan returns during 2008 were just short of abysmal. To think that a negative 20% return could put you well into the top quartile for the year. It’s just not all that pleasant a time. One in six plans were losing 30% or more of their value. Funded ratios were plummeting, with a 25% decline in the average funded ratio among the Fortune 1000 during 2008. In 2009, that ratio may have improved a point or two, but that’s it, despite a huge rally in the equity markets. Since March, liabilities have continued their inexorable pace upward.
What are we doing as a community to react to it? In a survey we did earlier this year of about a hundred plans with about $50 billion in assets, target allocations to equities, which were in the high 50s as of the middle of 2008, have declined by almost 8% during the one-year period. Part of that is due to market declines, part of it is due to lack of rebalancing, and another part of it is due to lack of risk appetite. In fact, we asked people to project their target asset allocation for 2010, and you can see a major increase in fixed income, nearly 8%.
Alternatives are going from a little above 8½ to over 10, and that’s about a 15% increase, with both of those coming at the expense of equity allocations. So indeed, there has been a bit of rethinking of the landscape for funds in general.
Here’s where the true pain comes in. The Treasury part of treasury risk management projected contributions for the Fortune 100 for this year at $28 billion, a 50% increase over the year before. Watson Wyatt’s projection of minimum required funding standards, absent any change in legislation, talks about a tripling of that number for plan year 2010. Truly not a lot of fun.
Of course, the pain is not just simply on the defined benefits side; there’s plenty of pain to spread around to our plan participants as well. We’ve seen that nearly one in four employers have either suspended their match of the 401(k) or are considering suspending their match. In a world where many defined benefit plans have been frozen, a matchless 401(k) means, indeed, that retirement is a do-it-yourself proposition. That’s a bit daunting for the next generation of workers.
Retirement and Benefits 2010 Transcript
We see workers reacting with just the same sort of uncertainty that corporate plan sponsors face as well. We’ve seen shifts out of equity, a dramatic increase in loan and hardship withdrawals, and many, many fast trades. None of which are necessarily very appropriate for long-term retirement money.
So there’s a dilemma out there. What are we to do? How do you manage these people so they can have a healthy working existence with you? And when they’re not with you also is critically important; hence, the importance of our award panelists here today and the importance of the work they do.
I will begin by making them do a bit of show and tell. As we introduce each panelist and give the award, they’ll have a chance to explain what they’ve been up to and what the effects of their work have been.
So, may I begin with the bronze winner: Scott Schaefer of Zappos. Scott is a senior treasury manager and a senior analyst at Zappos.com. He focuses on internal stock valuation, 401(k) fund analysis and employee education in accounts payable management, focusing on cash forecasting. Prior to Zappos, he was with a boutique investment firm, Partners Financial Group in Las Vegas. Before that, he was with Ernst&Young in their valuation group. He’s a certified treasurer professional and has a bachelor’s degree from the University of Pacific and an MBA from the University of Pacific.
Scott Schaefer: Thank you very much. The title of our entry today is, “Clearing out the cobwebs.” My colleague earlier told you a little about Zappos.com and what we do, but not so much in-depth about who we are. We are a service company that just happens to sell clothing, shoes, accessories and handbags, but above that we have an intense company culture that daily drives and dictates our business. And through this customer service and this culture, we create a real big family. Obviously, you want to take care of family. One of our core values that helps drive the culture is delivering “wow” through service.
Let me give you some background on our 401(k) plans. Our defined contribution profit-sharing 401(k) started back in 2003 with no assets at all with a fully bundled mutual fund platform provider. At that time we did not institute a company match. We felt that not all the employees would take the benefit of the 401(k) and the match, so we actually put all the money into 100% medical, dental and vision coverage for our employees, with 50% coverage for spouse. So that’s really where the bulk of the funding went versus doing a company match in the 401(k) where maybe a smaller percentage of people would actually participate. When it started up we did not have an investment policy statement nor an investment committee which oversaw the plan on a regular basis.
We had less than 20% participation at the end of 2007. We knew there was a lot of work in front of us. Fund changes had not been made, at least not in my recollection, and fund reviews were being performed on a pretty infrequent basis annually at minimum or actually at maximum. We knew that we had a lot of work to do. We had to clear out the cobwebs of the plan.
In late 2008 we started making some steps to “wowing” our participants because that’s really what it’s all about. We’re taking care of our participants as a plan sponsor. The first steps to really wowing them was to actually get them to become participants. An auto-enrollment feature was added on as a no-brainer step. They had the opt-out feature if they wanted to.
Second was changing the qualified default investment alternative. You know for a lot of us, for a long time it was either cash or just a straight balance fund, which obviously does not match the risk tolerance of all the participants; it varies with age. We all know that. So, we put in the target date retirement funds, just another simple solution but it has really helped us out from a fiduciary standpoint, as well as wowing our participants.
Retirement and Benefits 2010 Transcript
The next thing that we implemented was the cash debt of terminated employees. Our turnover ratios for our CLT department, which is our call center/customer loyalty team and warehouse in Kentucky, is a little bit higher than the rest of the company on average, at about 21% versus about 28% for the warehouse annualized. With a lot of this turnover, people would get auto-enrolled, they would have small balances, and they might not necessarily take the money with them when they would leave the company. We would have to incur these fees on the plan level since Zappo’s pays the per-participant fee. So this helped with under a $1,000 cash-out. We were able to eliminate those terminated employees as well as provide a rollover for people between $1 and $5,000. So we really started to wow the plan participants by reducing plan costs from that perspective. We did have layoffs in November 2008, so moving people out helped us from a cost perspective.
Then to continue wowing, obviously we needed to add an investment policy statement. This living document really dictates everything that a plan needs to do: How to monitor the funds. How to choose the funds. When I need to review the plan. All those aspects hadn’t been achieved for quite some time.
Pooling some resources through plansponsor.com, the Fiduciary Institute 360, as well as 401khelpcenter.com, we were able to establish this living document approved by legal and HR and all of our important departments and actually put that into place. We are reviewed on an annual basis because it is a living document and it needs to be reviewed.
The next big step was a fund review and cleanup. Since no fund changes had been done for a long time, if you look at our investment map it was really all over the board. We had maybe seven large-cap growth funds and no small-cap growth funds, so it was quite a discrepancy between the asset classes, and we weren’t being a good plan sponsor. We weren’t wowing our participants by leaving stagnant funds in the plan. Through an analytics tool, the FI-360 Tool Pack, we looked at some of the modern portfolio theory statistics behind the funds involved and saw which asset classes we were duplicating. We removed those and found the funds that had been underperforming in their respective peer groups. We eliminated them and implemented some new ones, eight new funds in particular to fill gaps as well as replace underperforming funds. We actually froze contributions to the funds that we deleted, about 12 funds, just because nothing had been done for such a long time. Completely eliminating them and mapping them over was a pretty dramatic move, so we figured that we would freeze them first for contributions and eventually phase them out over time. We’re currently in that process right now.
Obviously, with these big changes that are happening the largest part for participation that’s going to be necessary is increased education. Education for participants is key, specifically now with a lot of fiduciary issues that are coming out. So what we did was roll out a communications campaign on the fund changes. We did two classes prior to the actual fund change, performed the fund change, had a couple of classes afterward, and then had followup education classes. The classes were not just on the fund mapping and the fund choices, but on risk tolerance in general as well as teaching people the different asset classes. It’s not a very well known topic amongst participants. Especially if you have a call center and warehouse operations, the education of those rank and file is not necessarily there, so classes were provided by the treasury and HR department in both Kentucky and Henderson, NV.
To keep on wowing, we had not done a request for proposals on the plan ever, as far as I can recollect, so to assess whether plan costs were reasonable we decided that we would implement a two-phase RFP. The first phase of the RFP was to assess the plan costs. Secondly, some customer service levels had been slipping with our current provider, so we figured it would be beneficial to go out to the market and see what other people could potentially offer us.
Phase One specifically is in this plan. Phase Two has not reached a conclusion yet. In interviewing eight different providers--five group annuity, two mutual fund providers and an open architecture firm--we were able to establish that our plan costs were reasonable. They were in line with what the market was showing, which actually was a little bit to our surprise, too, so that was a good benefit. So we were able to do that and put that to rest. Our 401(k) audit partners were very happy about that also.
Retirement and Benefits 2010 Transcript
Lastly, our plan has been a little bit top heavy over the past few years, especially with the auto-enrollment feature at 1%. It’s going to continue to create that discrepancy between highly compensated employees and your rank and file. We need to find a solution to eliminate that top-heavy problem that we’re having and kicking back those contributions at the end of the year. We looked at implementing a nonqualified deferred compensation plan, having previously failed those tests. We met with a leader in the industry, and through a series of surveys to the company and discussing costs and performing the analytics on what the costs versus benefits would be, we decided that at this time the participation would not be effective.
Even though we had the good intention of potentially doing this, cost and participation dictated that we should really look toward other options. At the end of the day, we want to deliver the wow to everybody.
We increased our service levels with additional plan oversight putting the IPS into place as well as creating a plan advisory committee that is going to monitor the investments several times a year. The committee also will do an overall plan review and see if there’s some additional plan features that might be beneficial into the future, as well as review additional legislation coming out.
We actually were able to increase our plan participation, which was previously 19% at the end of 2007, to about 39% right before this entry was due. So we’re pretty proud of that percentage. We’re hoping to be on track for 50% participation. That’s the metric that we were tracking for the end of 2009. So we’re on track. Hopefully, we can get there. With some additional education, we think that we can do that.
We had a little bit of hard-dollar cost savings. Since we saw that our plan costs were in line, there really wasn’t too much cost savings from that perspective, but we did have cost savings in terms of adding funds. There was some negotiation. They were going to charge us. Luckily we had a good relationship, and were able to negotiate that out of the way as well as the term participant’s fees. It’s hard to specifically calculate overall, but just from the terminated employees from the layoffs we were able to save approximately $400 per quarter if they were to continue to leave that in there. It’s a small amount but every little bit counts.
Implementing the new funds obviously helped out with the freshness of the plan in increasing participation. When people feel that we’re moving and shaking the plan, they’re obviously going to want to jump in and put additional money into it, especially with the additional education on the types of funds that we have to offer.
Plan costs were reasonable. We felt that we were acting as a prudent fiduciary. Just another way that we can wow internally. We investigated some alternate plan providers and hopefully, depending upon what happens in the near future, we might be up here again next year, talking about Phase Two of that plan.
Lastly, we’re going to further investigate some additional plan provisions. Maybe look at analyzing a company match to help with those top-heavy concerns that we’re having. It’s all about how we can continue to provide that optimal service in the future. Hopefully next year I can tell you all about it.
Carl Hess: Time for our silver medalist. The suspense is killing us all. I’d like to introduce Richard Barger of Diakon Lutheran Social Ministries. Congratulations. Richard Barger is executive vice president and CFO of Diakon Lutheran Social Ministries. Heoversees all financial operations for the multiservice organization.
Prior to joining Diakon in 2001, he was a partner with Ernst & Young, where he had been since 1985 working largely with health-care providers. A 1971 graduate of Penn State University with a degree in business management, he has completed the Executive Program at Kellogg School of Management and, as you might guess, is a certified public accountant. He has acted on various professional boards and as an advisory board member of the school business administration at Penn State, Harrisburg.
Retirement and Benefits 2010 Transcript
Richard Barger: Let me tell you a little bit about Diakon Lutheran Social Ministries before I talk about our project. The one question I most often get is, “What does the word Diakon mean?” It’s a Greek word that means “to serve others.” For those of you who are into food, it’s also the name of a radish, but we don’t want to get confused with food. We’re here to serve others. One of our key goals is to be able to sustain the organization so we can serve more people each year. We’re currently serving about 100,000 people on an annual basis through a wide range of programs.
We provide over $1 million a month in benevolent care for people who need our services. Some can’t afford to pay for anything and others can’t afford the full cost of the service. If you want to talk about a treasury management challenge, trying to fund $1 million every month in benevolent care is probably the biggest challenge I have. At the same time, we have a core value called stewardship. And what that means is our board of directors expects us to run the business side of what we do at a surplus.
We’re located primarily in Pennsylvania. We also have some operations in Maryland and Delaware. We have two lines of business, a senior living service, which encompasses continuing care retirement communities that offer a full scope of services, including independent living, skilled nursing and assisted living. This chart shows that we started out in about 1868 as an organization. The organizations that make up Diakon started out as orphanages serving children after the Civil War. We go back a long time. In many ways we’re an old industry or old business, and in many ways we’re a fairly new business.
The other side of our business is our family and community ministry programs, and these programs encompass a wide range of services starting with adoption and foster care. They include senior centers and adult daycare programs, and we also manage the statewide adoption network for the state of Pennsylvania.
Everything we do within our organization is built around these guiding principles. Of course, like all organizations we have our mission and value statement. We have that goal to continually be able to serve more people. We’re trying to work within our organization on making sure we have a culture of gracious service and hospitality. What we’re finding is we do a pretty good job in that area in terms of serving our residents and our clients, but our people aren’t always as nice about teaching others as they should be. That’s a key area of focus in part of everything we do. The pension plan and our goals for retaining employees are part of that.
The question that we’re trying to address with our pension funding policy falls into the bucket of sustainable business. We have a defined benefit plan, we have a 401(k) plan, and of course we contribute to social security. We think the three of those should provide a very nice retirement package for our 2,300 employees. It’s predominantly a female work force, And the average age of our workers is about 40.
We have a very good retention rate, and we’re one of the few organizations in our business that offers a defined benefit plan. Most of our competitors or organizations like us have defined contribution plans. Few also have a defined benefit plan. Our retention rates are at 83% currently. That’s up from about 70% three years ago, and when we look at our peers, the average retention rate is about 60%. So we feel pretty good that we’re doing something right that enables us to retain employees. We think that the defined benefit plan is part of that. We don’t have any concrete evidence to support it but we think that is something that we can hold out in the recruitment process.
The question that our board asked a couple of years ago is, “Can we as an organization afford to have a defined benefit plan? Look at all the companies that are terminating their defined benefit plan, and what kind of assurance can you as management give us that it still makes sense for Diakon to keep its defined benefits plan.”
Thank goodness there are a lot of people around our organization that are a lot smarter in these things than I am. But we reached out to SEI, which manages the investment portfolio for our pension plan. We also reached out to our consulting actuaries and we started asking questions about the funding status of our plan, where were we, and what would it take to be able to get the plan back to fully funded status, and could we afford to get there? And if we got there, could we keep it there over a long period of time?
Retirement and Benefits 2010 Transcript
This chart gives you a sense of the current makeup of the pension plan. It’s not that different from most other pension plans, with a mix between equity and fixed income funds, but the current mix is different than it was a couple of years ago. We really sat down and had a lot of conversation about our plan, about our investment policy, and made the observations that are listed there about our plan. As a result of that, we decided that we needed to make not major changes, but some changes to the investment strategy.
· One of the things about being a church related organization that makes us somewhat unique when we look at the management of the defined benefit plan is that we have what’s called church plan status. And what that means is we’re not subject to the funding requirements of the Pension Protection Act. Also, we don’t make contributions to Pension Benefit Guaranty Corporation (PBGC) That may sound good to some of you, but for those of us who have responsibility for managing the plan, we believe that puts a bigger burden on our shoulders to make sure that we do a good job managing the plan to insure that when our employees do retire the benefit is there for them.
SEI really did a lot of analysis. They ran an incredible number of models. We were really pleased with some of the systems they were able to bring to the table, but also the different disciplines of investment managers that they brought to the table to really think through what is the right strategy for our organization.
Probably the biggest change that we’ve made was to move to a long duration bond fund, and that seemed to help us more than anything else that we did. We also put a small percentage of the funds into a hedge fund. Again, the thinking was more long term. The goal was that we had long-term liabilities that would be paid out over a long period of time. One of the things we learned about our plan was that the average maturity in terms of retirement benefits was out in the 23- to 25-year range. We know that we have time to fund this, so that was one of the key changes that we made as part of that strategy.
Is it working? Yes. Short term, it’s working. In terms of funding status, had we not changed the investment policy, our plan would have dropped from about $50 million down to $38 million, but instead it dropped from $50 million down to $43 million last year. As we look at what’s happened throughout 2009, things are still trending in a positive fashion for us. The strategy seems to make sense. Do we sit back and say this is our strategy forever? No, but we will look at it on an ongoing basis. Again, our thinking is about the characteristics of the plan and also keeping in mind what’s happening in the financial markets.
Where do we think we’ll get to? We think we’ll get back to fully funded status in our plan, somewhere between 2012 and 2013. We went to our board and said, “We think we can sustain a defined benefit plan. We think we have an investment strategy that will work.”
The other key to this strategy is a plan to make consistent contributions to the plan. Whether we’re required to or not, we are going to continue to contribute and our goal right now is something in the $3 million to $3.5 million range annually. It’s amazing, but that comes pretty close to the expected average annual payout from the plan. So most of the gains that we see back toward funding are going to come from what happens with the investment policy.
It has been an interesting process to be part of. It involved not just the finance area of Diakon, not just actuaries, and not just the investment experts from SEI, it included heavy involvement from our human resources staff and active engagement of our board of directors. Again, short term, it’s working. We hope it’s going to work for the long haul, and we’re really pleased to be here today to share our story. Thank you.
Retirement and Benefits 2010 Transcript
Carl Hess: I think we’ve figured out who our gold winner is. It’s my pleasure to introduce Charlie Malone of Honeywell. Charlie is the leader of U.S. Savings Plan Investments for the $7.5 billion dollar Honeywell Savings and Ownership Plan. He is a member of the investment committee. Charlie came to this role in 2007 having been the manager in investment operations for the $13 billion Honeywell defined benefit master trust. He joined Honeywell in 2005. Prior to that he was with UBS and Pharmacia, and worked investments funds for both those companies. Prior to starting up his career in pension investment, he was with American Home Products and Beneficial Management Corporation. Charlie holds a BA in economics from Fairfield and his master’s in management from the New Jersey Institute of Technology.
Charles Malone: Thanks very much. Thanks to Treasury & Risk as well for having us today. Let me give you a little background, rewinding back to 2007 and setting the stage at the end of 2007. The Honeywell Savings and Ownership Plan had about $9.7 billion dollars in assets and handled that for 100,000 active and retired participants. We utilized 11 proprietary funds, and they were largely index-based funds with some in a core satellite approach. All the investment choices were low cost to participants, and the default at that point in time was the short-term fixed-income fund. This left a diversified lineup for participants, but there was some opportunity for improvement here.
In looking to stay current on the investment choices, we had made underlying manager changes as necessary but had not really introduced a new fund choice to participants in about 10 years. Dave Anderson, the CFO, and Harsh Bansal, the vice president of investments, established a new position dedicated exclusively to the defined contribution plan. Jay Burden continued to chair the investment committee while I was appointed to the newly established position. In doing so, I embarked on a project to refresh participants’ investment choices with this background of additional government and oversight having been established.
The first step was to select and launch target date funds in the fourth quarter of 2007. They were introduced as Tier 1 in the communications campaign, and we selected Barclay’s Life Path Funds for doing that. Initially there were no assets mapped to the new target date funds and they grew to about $140 million dollars in assets just through participant activity.
The next step was to propose adding new funds while at the same time mapping the existing lifestyle funds as conservative, moderate, aggressive. They were static allocation funds to the target date funds. We established a nine-month timeline to do so in January with all of the changes bundled in a single release to participants targeted for September 2008. Who knew, right? In doing so we identified new asset classes and selected managers for our new funds, which were global real estate investment trust (REIT) and emerging markets. And we were to convert our existing small-cap fund to a small- to mid-cap fund, picking the mid-cap U.S. exposure.
The other phase of this, again in terminating the lifestyle funds, was to map $537 million dollars of assets in those funds to the new target date funds. In doing so we used individual mapping based on participants’ age. So it was conceivable that assets in the conservative fund could go to any one of the 11 new target date funds, and that held true for conservative, moderate and aggressive. The targeted savings on this was $750,000 per year in costs to participants. Again, all of this at the outset, unknown at the time, was what the 2008 market crisis would bring and hit in the middle of our project.
As you can anticipate, the market conditions collided with the project. Two days prior to launching all of this in a single release to participants, concerns arose with securities lending collateral pools on the new funds. We decided not to launch global real estate investment trust (REIT) and emerging market funds on Friday, September 26, when we were scheduled to go live on Monday, September 29. We were unable to launch as planned because all of this was a single release to participants, and it jeopardized all of the other plan changes as well.
Retirement and Benefits 2010 Transcript
It involved a team effort by our record keeper, internal staff, the trustee, investment managers and others to address this situation. We acted quickly to temporarily delay the launch of the new funds and communicate that in a fairly significant effort to all of our participants but still move forward with the mapping to the target date funds and the change from small- to mid-cap. We were able to successfully do all of this in a matter of days, having spent months in the making on the project plan.
With this in mind, the focus then shifted a bit towards the existing market conditions. Using established processes and practices, we began to address some of this. The market conditions and crises that impacted all 401(k) plans included the liquidity of securities lending collateral pools, low market-to-book ratios for stable value funds and fears that money market funds would break the buck. The actions that we took amidst all of this were to quickly analyze and reduce securities lending exposures, raise the cash level in our short-term fixed income fund, which contributed to a high market-to-book ratio. Anecdotally, we were told it was among the highest in the industry. I don’t believe we fell below 95%. Eliminating subprime from our short-term fixed income fund with the help of an investment manager over time, we reviewed and quantified the exposures to some of the “toxic” financial names that were out there.
We exited an enhanced cash strategy that was utilized throughout the plan at par in favor of utilizing a government STRIPS product, and we reviewed and monitored the money market funds. All of this, again, utilized some of our established processes in place. In accomplishing this, we held nearly two dozen investment committee meetings throughout the year.
With all of that in place, we then returned to the original project and set out to launch the previously temporarily delayed new funds (global REIT and emerging markets). In doing so, we also migrated, and I believe we’re one of the first to do so, from target date funds that lent to non-lending target date funds, again staying with Barclays.
Our timing in terms of returning to the new funds probably couldn’t have been better in that we selected new products, negotiated fees, and launched in March 2009. Total assets between the two strategies as of Friday were $98 million. Since inception, performance, again from March until Friday for these new strategies, was about +85%. All along the way we acted in the best interest of our participants to rejuvenate the lineup and address the market conditions.
The benefits of the project included implementing the target date funds not only as the qualified default but for voluntary contributions as well, and introducing them as the Tier 1 target date funds for participants in a communications campaign. We refreshed the participant choices in the Tier 2 core funds, which allowed for further diversification into major asset classes. The asset classes that we now offer in the Tier 2 core funds replicate those available through the target date funds. In doing all this we maintained a low-cost lineup to participants and saved some fees along the way with some negotiations.
Ancillary benefits, which were not part of the original project but we realized we could eliminate securities lending exposures throughout the plan where feasible. We reduced the risk of the cash balances by converting to U.S. government STRIPS and we increased the liquidity buffer, contributing to a higher market-to-book ratio on the short-term fixed-income fund.
So with that, a special thanks to my Honeywell colleagues, as well as BGI, ING as record keeper, Northern Trust, Rogerscasey and State Street as custodian. Thanks again.
Retirement and Benefits 2010 Transcript
Carl Hess: Three very, very good stories. I’m sure we have some questions people would like to ask all of the participants about their experiences.
Question: I was interested in Mr. Barger’s mention of this as a factor in retention, and I wondered if either Honeywell or Zappos had thought of their plans in terms of employee retention.
Charles Malone: We didn’t specifically target our changes in terms of attracting and retaining employees, but it was part of a larger project to refresh the existing lineup. Our plan is about 50/50 of the 100,000 that we have between active and retired employees. So our focus was more geared towards the existing participant base, active retired as well as attracting and retaining.
Scott Schaefer: I think we’re pretty much on the same line right there as it’s not necessarily used as a retention tool, especially when there’s no company match. It’s typically difficult to use that as a retention tool, but I think refreshing the lineup and making some of those changes definitely didn’t hurt it. We didn’t track any analytics on retention rates during that time. That actually had been lower company-wide, but I think that was due to some different circumstances and not necessarily due to the 401(k).
Question: This question is for Scott. I think you said you interviewed about eight providers and determined that your cost is in line I’m wondering, did you just compare the cost of the eight providers, their pricing versus their current record keeper, or did you use some other benchmarking or use their benchmarking? Also, is the current plan completely paid by the participants, or is it also partially paid by the plan sponsor?
Scott Schaefer: To answer the first part of the question about the eight providers we chose, we performed our own analytics comparing plan level costs to base costs per participant fees, some of the basic loan and maintenance fees as well as the overall fund lineup weighed at average comparing our current structure versus what some other providers were offering.
Through those comparisons we felt that we were pretty much in line with what the market was offering at our plan level. At the start of the presentation our plan assets were pretty small, about $2 million or so, so we’re definitely a micro-market company. Hopefully in the future as we grow we can leverage some of those cost savings and do an additional RFP and pricings will go down.
Our plan has always been paid by Zappos. We pay all the per-participant fees and plan level costs. The only cost that the participants incur is the expense ratios inside the fund. As a plan sponsor and prudent fiduciary, it’s important to make sure that those are as low as possible and we provide a good weight and average cost.
Carl Hess: We’ve reached the end of time for this session. Thanks to our panelists. Well done, gentlemen, and congratulations to your organizations.