AMO Currents - AMO 401(k) Plan: additional information regarding institutional investment changes

AMO Currents - Posted: December 15, 2011

AMO 401(k) Plan: additional information regarding institutional investment changes

AMO Plans is providing the following additional information regarding the timing of investment changes for the AMO 401(k) Plan, the process followed prior to making changes, and any costs that may be involved when changes are made. This information pertains to the document mailed to all Plan participants November 28, 2011, and to future mailings from the AMO 401(k) Plan.

The following process is employed on a continuing basis between the 401(k) Plan trustees and the Plan investment consultants at Morgan Stanley Smith Barney. On a quarterly basis, the investment consultants provide the trustees with a detailed written report for the 401(k) Plan, in addition to meeting with the trustees a minimum of three times per year to review the overall performance of the Plan, the allocation models in the Plan's investments and the individual mutual funds in the Plan. With this performance review, if warranted, the trustees will place mutual funds on the Plan's watch list for underperformance (relative to the other funds in their respective peer group). If the performance of a mutual fund on the watch list dramatically improves over the subsequent quarters, it could be returned to normal status; however, if a mutual fund continues to under perform for a period of time, it will be replaced by a mutual fund that shows superior performance within the respective asset class. These are the circumstances under which the three mutual funds identified in the November 28 mailing are being removed and replaced in the Plan. The trustees also approved the addition of two new funds to the Plan's investment options. Below is a recap analysis of the changes to the Plan:

Columbia Large Cap Core: this fund is the replacement for the Davis NY Venture Fund. In the investment options matrix of funds, this replaces the managed fund in the Large Cap Blend classification. The Davis NY Venture Fund has been on the Plan's watch list since the fourth quarter of 2009, and with its recent sub-par performance, it now ranks in the lower quartile for the most recent one-year, three-year and five-year performance data, and currently carries a Morningstar rating of two stars on a five-star scale. The Columbia Large Cap Core Fund carries a five-star rating and has been in the top quartile for the most recent one-year, three-year and five-year performance data.
JP Morgan Large Cap Growth: this fund is the replacement for the American Funds Growth Fund of America. In the investment options matrix of funds. This replaces one of the two managed funds in the Large Cap Growth classification. This fund has been on the Plan's watch list since the third quarter of 2010 and it also ranks in the lower quartile for the most recent one-year, three-year and five-year performance data, and currently carries a Morningstar rating of three stars on a five-star scale. The JP Morgan Large Cap Growth Fund carries a five-star rating and has been in the top quartile for the most recent one-year, three-year and five-year performance data.
MFS Moderate Allocation Fund: this fund is the replacement for the Dodge & Cox Balanced Fund. In the investment options matrix of funds, this replaces one of the three managed funds in the Moderate Allocation Funds classification. Like the Davis NY Venture Fund, this fund has been on the Plan's watch list since the fourth quarter of 2009. It also ranks in the lower quartile for the most recent one-year, three-year and five-year performance data, and currently carries a Morningstar rating of two stars on a five-star scale. The MFS Moderate Allocation Fund carries a five-star rating and has been in the top quartile for the most recent one-year, three-year and five-year performance data.
Wells Fargo Advantage Growth: This fund is a new addition to the Large Cap Growth classification. The fund carries a five-star rating from Morningstar and has exceeded the benchmark for Large Cap Growth funds for the most recent one-year, three-year and five-year time periods. The fund currently holds $5.4 billion in assets and the fund manager has been in place since the inception of the fund (August 2002).
Blackrock Global Allocation Fund: This fund is a new addition to the Moderate Allocation Funds classification and would become the default fund for the Plan. The fund carries a four-star rating from Morningstar and has exceeded the benchmark for Moderate Allocation funds for the most recent one-year, three-year and five-year time periods. The fund currently holds $52.4 billion in assets and the fund manager has been in place since 1989.

The professional service fees charged by the Plan's investment advisor, Morgan Stanley Smith Barney, and custodian, Wilmington Trust, are based on a small percentage of the total dollars invested in the Plan by the participants. The professional service fee charged by the Plan's record keeper, The Newport Group, is based on the total number of participants in the Plan. These professional service fees and all other costs relating to the administration of the Plan - including participant distributions, loans, hardship withdrawals, etc. - are paid for entirely by employer contributions. There are no administrative costs applied to Plan participants.

Plan movement out of one mutual fund and into another does not result in any additional fees or charges to the Plan. By being on a fee structure based upon total dollars invested in the Plan by the participants, migration to high-performance funds is in the best interest of both the Plan participant, who will have available the best in each class of investment funds, and the professionals employed by the Plan, as their fee would be enhanced by superior fund performance.

By utilizing an open-architecture platform, the Plan is not tied to one fund family - such as Vanguard, T. Rowe Price or Fidelity - to provide the majority of the investment choices. This structure gives the trustees the ability to have the top funds available while maintaining the ability to qualify for the institutional-class category of a mutual fund, which typically carries a much lower mutual fund fee. As a result, the current average mutual fund fee for the AMO 401(k) Plan is .78 percent. When the MetLife Stable Value GIC Fund (which carries no fee) is factored in, the fund fee is actually .59 percent. These numbers are dramatically lower than 401(k) Plan industry averages. These numbers illustrate the benefit of the AMO 401(k) Plan's open-architecture platform - the lower the fund fees, the more retained by each participant in the fund.

Although there are currently no timeframe requirements for notification of Plan fund changes, 30 days' or greater notice will be given to all Plan participants for any investment option changes that may occur in the future.