Home Depot Renovates 401(k) Plans to Add Value, Cut Costs

True to its corporate mission of home improvement, Home Depot Inc. has been remodeling its $3.7 billion U.S. and $10 million Puerto Rican 401(k) plans.

The purpose is to add value and cut costs. In fact, the Atlanta-based company has cut expenses in half since 2009. There have been “reductions in record-keeping and investment management fees over time,” said Brant Suddath, director of benefits. He didn’t provide specific numbers.

The most recent cost cuts came in February, when Home Depot officials negotiated lower investment management fees with BlackRock Inc. for its LifePath target-date funds.

In addition to hard bargaining, Suddath said the company uses separate accounts, commingled funds, institutional mutual fund shares and open architecture to keep fees low.

The plans offer a core lineup of 12 options, in addition to the target-date series and a self-directed brokerage window to accommodate participants who want greater access to mutual funds, exchange-traded funds and stocks.

The core options include separate accounts for large-cap, midcap and small-cap growth equities; small-cap value; and stable value. Mutual funds are used for the large-cap and midcap value strategies and for an international blended fund. Index funds for bonds and large-cap equities are offered through commingled funds. The balanced strategy takes a fund-of-funds approach. The target-date series also is in commingled funds.

A company stock fund has been closed to new investments since September 2008—when it represented 24.8% of total plan assets—to encourage diversification, Suddath said. It now represents 17.8 percent of the plans’ assets.

The brokerage window, added when the stock fund was frozen, has been used by less than 1 percent of participants, and represents less than 1 percent of total assets.

Home Depot executives have been making these changes even though the plans’ overall participation rate of 60 percent is above the 51 percent average for retail companies tracked by Aon Hewitt, Lincolnshire, Illinois, said Alison Borland, vice president for retirement strategy.

Aon Hewitt is record keeper for Home Depot, while Hewitt EnnisKnupp is the company’s investment consultant.

“They have been an early adopter of services like quick enrollment and mobile applications” to provide participants with easier access to their accounts, said Borland.

“They have unique challenges with a mobile workforce that is diverse in race, language and learning styles,” she said. “They know their population very well. They are very deliberate in what they offer.”

Robert Steyer writes for Pensions & Investments, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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