General Motors Corp. offers what might be described as the Cadillac of 401(k) plans.
GM employees can join their company plan after working at the firm for just six months. Using the phone or the Internet, they can sign up for choices, check balances, and shift money between accounts.
Most important, the company offers its employees an astounding menu of 75 separate investment choices.
"We revamped the plan about a year ago, in January 1999, and we wanted to make it accessible and understandable to our employees," says Michael Klehm, a GM official who helped set up the new program.
To make it easy to grasp, GM provides workers with three gates, or "pathways," Mr. Klehm says.
*Pathway I is for employees "who want to spend as little time as possible" monitoring their investment choices. This path offers a group of "lifestyle" funds - mutual funds linked to your age, family situation, and work goals. It offers five funds from Fidelity Investments and four internal GM institutional funds, called Promark funds.
*Pathway II is for employees "who want to spend a little more time with their portfolio," Klehm says. This approach offers style-specific funds, such as a large-cap growth fund, or a large-cap value fund.
The Promark funds, which dominate this pathway, tend to use multiple managers who have expertise with certain segments of a stock market. The Promark Large Cap Growth fund, for example, has four managers.
These funds are also somewhat strict; they do not "drift" into different investment styles.
*Pathway III is for employees "who want to spend as much time as necessary with their investments," Klehm says. The funds are not style specific. The Fidelity Magellan Fund, for example, tends to be a large-cap fund, but also buys non-large-cap issues, such as technology firms.
Some 300,000 employees participate in GM's 401(k) plan. One advantage, Klehm says, is that by using in-house institutional funds (GM's own Promark funds), expenses have been slashed to bare minimums. Most Promark expense ratios are around 0.25 percent or 0.30 percent, which is comparable with expenses offered by the lowest-cost mutual fund company, the Vanguard Group.
GM administers the GM plan. Fidelity provides the record keeping.
Although most employee contributions go into stock offerings, the company also offers bond products, and a fund that provides a guaranteed interest rate: GM's Promark Income Fund. The rate currently runs close to 6 percent, well above returns of most money-market funds and guaranteed interest contract (GIC) products, experts say.
The rate is also reset each quarter, unlike most GICs, which are set annually.
GM also offers five stock funds that carry just GM stock. Three of them, however, are closed to new GM workers, since they involve shares in three companies formerly run by GM - Delphi, EDS, and Raytheon - which have been spun off.
GM's plan also provides a company match of 80 percent on the first 6 percent of an employee's salary. The match, however, would probably not win unanimous approval from financial experts, since it comes in the form of company stock. But in the case of GM - where market gains have been generally solid in recent years - there's a lot of advantage in owning that stock.
(c) Copyright 2000. The Christian Science Publishing Society