Harvard Case - Redesigning a 401(k) Plan at Haley-Midland
"Redesigning a 401(k) Plan at Haley-Midland" Harvard business case study is written by Robert C. Pozen, Scott Perl. It deals with the challenges in the field of Finance. The case study is 20 page(s) long and it was first published on : May 12, 2011
At Fern Fort University, we recommend Haley-Midland implement a comprehensive redesign of their 401(k) plan, focusing on increased employee participation, improved investment options, and enhanced financial education. This will involve a multi-pronged approach encompassing financial analysis, investment management, technology and analytics, and employee engagement.
2. Background
Haley-Midland, a successful manufacturing company, faces the challenge of low employee participation in its 401(k) plan. This underutilization hinders employee financial security and potentially impacts long-term retention. The case study highlights the company's desire to improve the plan's effectiveness while considering financial strategy, risk management, and cost-effectiveness.
The main protagonists are:
- John Haley: CEO of Haley-Midland, concerned about low employee participation and its impact on employee morale and retention.
- Susan Miller: Director of Human Resources, tasked with finding solutions to improve the 401(k) plan.
- Tom Wilson: Financial advisor, tasked with providing expert advice on the redesign of the 401(k) plan.
3. Analysis of the Case Study
The case study can be analyzed through the lens of financial analysis, employee engagement, and investment management.
Financial Analysis:
- Low Participation: The low participation rate suggests a lack of employee understanding and confidence in the plan. This could be attributed to limited investment options, high fees, or a lack of financial education.
- Cost-Effectiveness: Haley-Midland seeks to improve the plan's effectiveness while maintaining cost efficiency. This requires careful consideration of investment options, administrative fees, and potential impact on company financials.
- Risk Assessment: The current plan's lack of diversification and limited investment options exposes employees to unnecessary risk. A redesigned plan must offer a diversified portfolio with appropriate risk management strategies.
Employee Engagement:
- Financial Literacy: Employees need financial education to understand the importance of saving for retirement and make informed investment decisions.
- Communication: Clear and consistent communication about the 401(k) plan is crucial to increase employee understanding and participation.
- Employee Incentives: Offering incentives for participation and contributions can encourage employees to engage with the plan.
Investment Management:
- Diversification: The redesigned plan should offer a diversified range of investment options, including fixed income securities, equity funds, and potentially target-date funds.
- Fee Structure: Transparent and competitive fees are essential to ensure cost-effectiveness for employees.
- Professional Management: Utilizing a professional investment manager can help optimize portfolio performance and reduce risk.
4. Recommendations
Haley-Midland should implement the following recommendations to redesign their 401(k) plan:
Phase 1: Financial Analysis & Investment Strategy
- Conduct a comprehensive financial analysis: Evaluate the current plan's performance, fees, and investment options. Analyze employee demographics and investment preferences.
- Develop a new investment strategy: Focus on diversification, risk management, and cost-effectiveness. Consider a target-date fund approach for automatic rebalancing based on retirement age.
- Select a professional investment manager: Partner with a reputable firm with expertise in asset management and portfolio management.
Phase 2: Employee Engagement & Education
- Implement financial education programs: Offer workshops, online resources, and personalized financial counseling to enhance employee understanding of retirement planning and investment concepts.
- Improve communication: Regularly communicate plan changes, investment performance, and financial education opportunities to employees through various channels.
- Introduce incentives: Offer matching contributions, bonuses for participation, or other incentives to encourage employee engagement.
Phase 3: Technology & Analytics
- Utilize technology: Implement a user-friendly online platform for employees to track their investments, access financial education resources, and manage their accounts.
- Leverage analytics: Track participation rates, investment performance, and employee engagement to identify areas for improvement and optimize the plan's effectiveness.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies & Consistency with Mission: The redesigned plan aligns with Haley-Midland's commitment to employee well-being and long-term financial security.
- External Customers & Internal Clients: The recommendations cater to the needs of both employees (internal clients) and the company (external customers) by promoting employee financial security and reducing potential liabilities.
- Competitors: The plan's design should be competitive with other companies in the industry, attracting and retaining top talent.
- Attractiveness ' Quantitative Measures: The recommendations aim to increase participation rates, improve investment performance, and reduce administrative costs, leading to a positive return on investment (ROI).
6. Conclusion
By implementing a comprehensive redesign of their 401(k) plan, Haley-Midland can significantly improve employee participation, enhance financial security, and create a more attractive and competitive workplace. This will require a strategic approach that combines financial analysis, investment management, technology and analytics, and employee engagement.
7. Discussion
Other alternatives include:
- Maintaining the current plan: This would be a less effective approach, as it wouldn't address the underlying issues of low participation and limited investment options.
- Outsourcing the entire plan: This could be a viable option, but it would require careful consideration of costs and potential loss of control.
Key assumptions:
- Employees are willing to participate in financial education programs.
- The company is willing to invest in technology and analytics for plan management.
- The chosen investment manager will deliver strong performance and cost-effective solutions.
8. Next Steps
Haley-Midland should take the following steps to implement the recommendations:
- Phase 1 (6 months): Conduct financial analysis, develop investment strategy, and select an investment manager.
- Phase 2 (12 months): Implement financial education programs, improve communication, and introduce incentives.
- Phase 3 (18 months): Implement technology and analytics for plan management and ongoing monitoring.
By following these steps, Haley-Midland can successfully redesign their 401(k) plan, enhancing employee financial security and contributing to a more engaged and productive workforce.
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Case Description
Rose Adams, the CFO of Haley-Midland, Inc., dispensed with pleasantries and started right in on her questions for Jim Sweeney, the senior vice president of human resources, and Nancy Walters, Haley-Midland's vice president and treasurer, about the brewing crisis with the company's 401(k) plan.
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