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We recently published a summary of the United Airlines 401K plan. Subsequent to this, United Airlines (UAUA) informed us that they have upgraded their plan in October 2010 so we will now review the new plan.

The upgraded plan has 21 funds --little changed in number. These funds enable participants to gain exposure to 3 major assets: US Equity, Foreign Equity, Fixed Income -- again the same as the last plan.

We will compare the old and new funds as they both have similar composition.

Asset Class New Plan Old Plan
U.S. Equity Excluding Company Stock 6 6
International Equity 2 2
Balanced Funds 3 4
Fixed Income 4 3
Target Date 5 6

As of Nov 11, 2010, the new plan's investment choice is rated as above average based on MyPlanIQ Plan Rating methodology that was designed to measure how effective a plan's available investment funds are.

Plan Rating Attribute New Plan Old Plan
Diversification 77% 43%
Fund Quality 86% 20%
Portfolio Building 76% 42%
Overall Rating 79% 35%

This is a significant jump across the board without introducing a lot more funds. The key reasons for the improvement are:

  1. US and international equities have large, medium and small cap alternatives, whereas previously it was just large cap stocks
  2. The fixed income choices are higher quality

This should be a well performing three asset class plan.

Performance chart (as of Nov 10, 2010)

click to enlarge

Performance table (as of Nov 10, 2010)

Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
United Airlines Flight Attendant 401(k) Plan Tactical Asset Allocation Moderate 6% 53% 6% 67% 9% 92%
United Airlines Flight Attendant 401(k) Plan Strategic Asset Allocation Moderate 8% 89% 0% -0% 5% 29%
United Airline 401K Plan 2010 Tactical Asset Allocation Moderate 8% 92% 6% 78% 10% 114%
United Airline 401K Plan 2010 Strategic Asset Allocation Moderate 12% 123% 3% 23% 8% 57%

If we now compare this to the Kellogg (NYSE:K) plan, as we did in the last article:
Performance chart (as of Nov 11, 2010)

Performance table (as of Nov 11, 2010)

Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
United Airline 401K Plan 2010 Tactical Asset Allocation Moderate 8% 92% 6% 78% 10% 114%
United Airline 401K Plan 2010 Strategic Asset Allocation Moderate 12% 123% 3% 23% 8% 57%
Kellogg 401k Plan Tactical Asset Allocation Moderate 2% 19% 4% 45% 8% 72%
Kellogg 401k Plan Strategic Asset Allocation Moderate 13% 100% 3% 16% 8% 43%

We can see that the United Plan now nudges ahead of the Kellog plan in terms of risk adjusted returns over the last five years.

Kudos to United in recognizing that their 401K plan needed to be improved and providing a free upgrade for its employees.

Disclosure: No positions

Source: United Airlines Upgrades Its 401K Plan