Should you bundle 401k services?

• Author: Strandjord, M. Jeannine
• Position: Employee Benefits

Bundling 401K services has saved Sprint a bundle. And participants are getting better, faster service.

Defined contribution plans are becoming increasingly prevalent, especially the 401K plans within the private pension marketplace. And, in fact, the total funds invested in private 401K plans has increased from $110 billion to $250 billion in the last five years. But with the increasing popularity of these plans, employers are challenged to provide plan service efficiently and with minimum cost and administrative burden. They also must be concerned about compliance with the Department of Labor's 404(c) regulations, which requie, in essence, that such plans offer participants a minimum of three diversified investment options, and that they allow participants to transfer in and out of their investment options at least once a quarter. Bundling all the 401K services with a single provider enables companies to accomplish all of these objectives. Even though Sprint's 401K plan was in conformance with the 404(c) regulations, we recently decided to bundle the service because we learned that such an approach would enable us to provide the most cost-effective and efficient services to plan participants.

Sprint, like many companies, especially those in high-tech industries, has undergone significant changes as the industry has changed and as the company's core businesses have expanded. As the company has grown, so has the number of people it employs--and so has the need to provide services to those employees. One of the challenges to Sprint has been to direct an employee benefit plan that attracts and holds the kind of employees who will contribute to the company's future growth, and to provide those plans at the most efficient cost to the company and its shareholders.

ACCOMMODATING GROWTH

Until early 1992, Sprint was known as United Telecommunications, Inc. The company's principal business was providing local telephone service. But in the 1980s, United Telecom expanded into long distance. In 1986, United Telecom and GTE merged their long-distance businesses to form a 50/50 partnership, called US Sprint. United Telecom proceeded to buy out the GTE interests in 1988, first acquiring an additional 30.1 percent to assume controlling interest, with an agreement to complete the buyout of remaining interest from GTE. When United Telecom completed the buyout in early 1992, the company changed its name to Sprint Corporation.

Before 1990, the company had two 401K savings plans for non-bargaining unit employees, one for United Telecom employees and the other for the employees in the long-distance partnership still owned by US Sprint and GTE. But after United Telecom purchased an additional 30.1 percent of US Sprint from GTE in 1990, management decided to merge the two plans and to add two new investment options...