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Nationwide Introduces Novel 401(k) Plan


Nationwide Financial Services of Columbus, Ohio has come up with an innovative approach to providing asset management services to publicly-held 401(k) sponsors that allows employees to actively trade shares of their employers' stock within their 401(k) plans.

Under the program, Nationwide can create a stock fund-like account that invests exclusively in the stock of any 401(k) sponsor that is a publicly-traded company. In addition to investing in the stock of that public company, the stock fund account will invest a small percentage of its assets in a non-proprietary money market fund. That will provide a liquidity component to the equity account, said Steven J. Rose, vice president and pension product manager for Nationwide.

The money market fund being used is the Alliance Capital Reserve Money Market Fund, advised by Alliance Capital Management of New York.

The percentage that will be invested in the money market fund will be determined by the employer and will vary according to the plan sponsor's liquidity requirements, the number of plan participants and the amount of employee trading activity, Rose said.

The new offering will allow plan sponsors to more easily purchase shares of their own stock for participants, while reducing trading costs, said Rose.

Currently, many smaller employers are unable to handle plan participants' requests to buy or sell shares of the companies' stock, said Rose. Those that are able usually rely on a discount brokerage firm to execute stock trades for the 401(k) accounts.

"But it is not a smooth operation," said Rose. "The whole process is usually held together with chewing gum."

Even in cases in which a small plan sponsor uses an outside plan administrator, few providers will purchase a plan sponsors' stock for plans under $50 million, Rose said.

Small but public employers face traditional three-day settlements on stock transactions and, higher volume means higher trading costs, Rose said. By creating a stock fund account, plan sponsors can save time and money, he said.

"We tried to come up with something very efficient and be able to trade in the stock in the same but less costly way," he said.

The new service is being offered first to existing Nationwide retirement plan clients whose corporate stock has been actively traded on the NYSE, AMEX or Nasdaq for at least one year, and has an average trading price of at least $5 per share. Nationwide is requiring that clients have a minimum of $1 million already invested in the company's stock on behalf of plan participants.

Nationwide specializes in providing defined contribution plan services to smaller employers, generally with 1,000 or fewer participants. Nationwide currently provides services to some 18,000 sponsors. Rose did not know precisely what percentage of those clients were publicly-traded companies.

Nationwide can customize a stock account for each of its publicly-traded 401(k) sponsor clients. But these accounts will not be registered as mutual funds, said Rose.

"It is not a mutual fund but it is handled as if it were a mutual fund," he said.

Like mutual funds, the Nationwide stock accounts will offer daily pricing, Rose said. Defined contribution plan participants will own fund units within their plan accounts rather than individual shares of the company's stock. This will be reflected in participants' account statements.

The tailored fund account will generally track the price of the company's stock, but because of the small investment in the outside money fund which will add liquidity, it will not track the company stock exactly, Rose said.

All daily stock trades will be combined when possible so as to have the least possible impact on the fund's stock, he said.

Nationwide will charge publicly traded plan sponsors an independently negotiated asset-based fee or a flat annual fee for this service, said Rose. Since the product became available in February, Nationwide has signed up one client, he said.