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Wal-Mart a smart shopper for target date funds

Retailing giant chose custom offerings because of cost, control and diversification

By Nancy K. Webman

November 29, 2009 6:01 am ET

Wal-Mart Stores Inc. has introduced custom target date funds to its more than 1 million 401(k) participants, following an unusual selection process.

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Nathan Voris, senior manager for global benefits design at Wal-Mart, described the beginning of the vendor selection process this way: “We basically read every paper written by firms about target funds, and if we thought they were interesting ... we contacted them.”

The plan has about $10 billion in assets.

Mr. Voris discussed the process during a presentation at Pensions & Investments' West Coast Defined Contribution conference in San Francisco this month.

To be considered, he said, the firm had to be a fiduciary, academically focused and in the asset allocation business for a while. Wal-Mart ultimately chose Ibbotson Associates Inc., and the funds were rolled out Sept. 4.

One important decision was whether to use off-the-shelf or custom target funds. Wal-Mart decided on custom funds because of cost, control and diversification, Mr. Voris said.

By choosing custom funds, he said, Wal-Mart could control costs, keeping fees under 30 basis points per fund. Plus, company officials wanted to control the asset allocation, manager selection and the active-versus-passive decision, Mr. Voris said.

“Diversifiers” also were critical, Mr. Voris said, noting that the target date funds include commodities, Treasury inflation-protected securities, real estate, emerging-markets equity and fixed income. He said that an advantage of custom funds is that they the glide path can be designed around the demographics of a company's employee base.

One decision with which more plan officials are wrestling is whether a plan should be designed to serve participants until retirement (“to”) or beyond retirement age (“through”). Because about 100,000 Wal-Mart employees continue to work past retirement age, "through' for us was the right methodology,” Mr. Voris said.

Nancy K. Webman is the editor of sister publication Pensions & Investments.

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