A quantum leap for Alcoa's 401(k).

• Author: Heckathorn, Larry
• Position: Aluminum Company of America's employee benefits - Employee Benefits

Keep it simple, says Alcoa, which used technology to consolidate its 401(k) plans without losing flexibility for its subsidiaries.

Not long ago, Alcoa transformed its 401(k) into a "mega-plan" that would deliver world-class services and save the company money. The concept began to shape up about two years ago, when Alcoa was restructuring. It became a decentralized company, with 22 businesses reporting directly to the chairman. The benefits department couldn't afford to sit on the sidelines as this major initiative unfolded across the organization. It needed to contribute some quantum-leap improvements of its own.

At the time, Alcoa was juggling seven 401(k) plans. The largest in assets covered about 9,000 salaried employees, offered a modest array of investment choices and provided service-related matching contributions. While competitive, the service-related match discouraged some employees from saving early in their careers.

Some of our other businesses and subsidiaries had their own 401(k)s. One unmatched plan covered about 15,000 hourly employees and offered only one investment vehicle. Subsidiaries offered plans with year-end discretionary matching contributions and a variety of other arrangements. In addition, Alcoa offered key employees a nonqualified plan designed to mirror the 401(k).

To complicate things at both the corporate level and the operating units, each plan had its own stable of providers -- recordkeepers, investment managers, trustees and so forth. Also, each plan required separate forms, processes and procedures for routine activities. Employees had to endure paperwork delays, even if enrolled in plans with relatively limited fund diversity. For instance, they had to submit forms by the 20th of the month to effect fund transfers at month's end. In short, the plans required a lot of support just when we were streamlining and trying to bolster the effectiveness of the human resources function.

SMARTER, NOT JUST FASTER

The vision underlying the mega-plan concept was consolidation, but that wasn't the only goal. We wanted to use the latest technology to manage smarter -- not just faster -- than before. Translation: a high-powered umbrella plan with all the bells and whistles for our employees, but efficient enough to be affordable for even the smallest subsidiary. Today, our subsidiaries can adopt the standard qualified plan and the nonqualified plan, although the nonqualified plan documents are often tailored to subsidiaries' needs. As an incentive, our new 401(k) includes a package of leading-edge services that each subsidiary probably couldn't support on its own.

With the help of a consulting firm, Alcoa began building its ideal system with a...