When Tektronix Inc. took a look at its retirement program in late 2001, it found that its 401(k) and defined-benefit pension plans were cost-effective, and participation in the 401(k) was high. But the maker of test and measurement equipment, which had $791 million in fiscal 2003 revenues, saw other aspects of the plans that it thought could be improved. For example, the 401(k) provided only six investment choices, while plans at peer companies generally offered 11. The technology associated with the retirement plans was behind the times, too. Various service providers had different online offerings, none of them in a consistent format, and participants' questions still went through Tektronix's HR department. When legislative changes occurred, the company had to make a big effort to incorporate the new regulations into its retirement program.
Tektronix considered switching some of its providers, but it decided that the most effective approach to becoming a world-class retirement program was to bundle all the services and outsource everything to a single provider. By going the bundled route, Tektronix upgraded its retirement benefits without increasing either its costs or the fees charged to plan participants.
Once it decided on Putnam Investments, the switch took six months. The critical blackout period, during which employees are unable to access their accounts, took just 11 days, rather than the 30 days the company expected. Randahl Finnessey, assistant treasurer at Tektronix, credits the abbreviated blackout to Putnam's expertise and the Tektronix team's extensive preparations.
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The company is already seeing benefits from its move. The increase in investment choices encouraged 401(k) participants to diversify, with the average number of funds held now 4.02, up from 3.23 under the old program. Tektronix's 401(k) participation rate, already high, has risen even more, to 92.3% from 89%, and Finnessey credits the on-site education that Putnam offered in preparation for the changeover. "That's where you saw that 3% bump," he says. Participants have access to far more information and education via the Web, and the move has made life a little easier for the company's overburdened HR staff. While the average cost so far is unchanged, "we are looking for it to ultimately reduce costs for both the company and for the participants," Finnessey says.
RETIREMENT – Silver
AstraZeneca
Unlike many other companies, the U.S. unit of AstraZeneca Pharmaceuticals has been on a hiring spree. Since it was formed in 1999 by the merger of the U.K.'s Zeneca and Sweden's Astra AB, the new company's U.S. workforce has grown 57%.
As part of its effort to attract new employees, AstraZeneca revamped its U.S. retirement program by incorporating an innovative take on a defined-benefit pension, a money purchase pension plan, that it provides to all employees along with a 401(k). All new employees participate in the money purchase plan, but employees who were already participating in the legacy defined-benefit pension plan could choose to stay in that plan.
In the money purchase plan, as in a traditional defined-benefit plan, AstraZeneca puts up all the money: It contributes 4% to 7% of each employee's salary each year, depending on age and years of service. And the money purchase pension plan offers portability similar to a cash balance plan, with employees vesting after five years. But the new plan differs from both traditional pension plans and cash balance plans in that employees decide how to invest their money, as they would in a 401(k), choosing from a line-up of investment options that's very similar to that of the company's 401(k) plan.
Greg Davies, AstraZeneca's treasurer, says the company's goal was to provide the portability and control over investments that workers had begun requesting. "We were at a point where we were trying to add quite a few people to our workforce," Davies says. "It certainly enabled us to move in that direction." He admits that the plan's design also removes any worry about pension funding. When employees leave or retire, they get whatever is in their account-as if it were a 401(k). That leaves the plan always fully funded.
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