Intel Corp. has reprogrammed investments in its $5 billion 401(k) plan, cutting the number of options to 21 from 72 to reduce overlap and increase ease of choice.

The investment changes are part of a broad effort by the Santa Clara, Calif.-based company to increase participation and better align participant asset allocations with their ages and financial circumstances.

“The primary motivation is to improve outcomes and encourage employees to save enough,” said Stuart Odell, assistant treasurer, retirement investments.

Plan officials, who have auto-enrolled new employees since 2007, offered automatic enrollment to 5,000 nonparticipating existing employees for the first time, and 3,000 have enrolled since January. The default is 3% of a participant's salary.

Next year, Intel will begin auto escalation, with an annual increase of 1% up to a maximum 10% of a participant's salary.

The centerpiece of Intel's investment effort is a revised lineup that retains some options for employees with little or moderate comfort in investing, but also offers a greater choice to those who are more active investors.

Company officials eliminated 55 mutual funds and two commingled trusts in a mutual fund window. That window was replaced by a self-directed broker option that offers 4,500 mutual funds and exchange-traded funds.

The cuts were made “to give participants a better experience” and reduce overlap in investment styles, said Tamiko Hutchinson, global retirement program office manager. “When confronted with a long list (of options), they didn't know where to start.”

For the least experienced investors, Intel retained its custom target-date series. Intel has offered this option through a commingled trust since 2004, although “the glide path and underlying manager lineup have changed since the funds were first introduced,” Mr. Odell said.

Originally, Intel used index funds for its target-date series. Now, the target-date series is a mix of active and passive.

About 25% of target-date assets are now in hedge funds, and 5% in commodities.

Another 3%—contained in the fixed-income component of the target-date series—is a combination of Treasury inflation-protected securities, emerging markets debt, high-yield bonds and bank loans.

Intel officials also made some changes in its core options.

Under the old system, Intel offered commingled trusts, stable value, global bonds, large- and small-cap domestic equities, and international equities.

Those options remain, as does a balanced commingled trust. In addition, Intel moved seven mutual funds from the discontinued mutual fund window to the core options menu—a Standard & Poor's 500 index fund and six actively managed funds.

This month, Intel expanded the core by adding a money market mutual fund and four indexed commingled trusts.

Intel retained its company stock fund and the requirement that a participant may not invest more than 20% of his or her account balance in employer stock.

The company began using hedge funds in its target-date series in April 2010, with a 10% allocation that has since been expanded to 25%.

“Hedge funds certainly have good risk-adjusted return characteristics that we found to be compelling for increasing portfolio diversification and taking down portfolio volatility,” Mr. Odell said.

Intel's $4.9 billion profit sharing plan, known as the retirement contribution plan, has invested in hedge funds since 2007.

That helped in “getting management comfortable” with adding hedge funds to the target-date series, Mr. Odell said.

“We were already doing it, so it is relatively straightforward to put hedge funds into target-date funds,” he said. “We didn't have to create a new hedge fund portfolio.”

Intel's planning for the changes began in 2009, based on company research that revealed some unsettling facts about participant behavior. Only 35% had asset allocations appropriate to their ages, said Ms. Hutchinson, adding that 20% of employees didn't participate at all.

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“We looked at whether their individual asset allocation coincided with what a professional would have recommended for their age and risk tolerance,” Mr. Odell said.

Intel officials also tried to determine if participants had rebalanced their portfolios or whether they stayed “the same for 20 years,” Mr. Odell said. “Most participants don't rebalance systematically.”

The changes were announced through a massive education campaign.

“It was a big job,” Ms. Hutchinson said. “We had to reach people with multiple types of sophistication,” ranging from office workers to factory workers.

Intel shared its investment behavior research with employees.

It also mailed a customized “total retirement statement” to each employee, describing their investments, telling them if they were “on track” for a successful retirement and showing how improving their savings rate could affect their retirement.

Senior corporate managers visited factory floors at several sites to preach the message of retirement plan savings, including talking to workers at midnight shifts, said Mr. Odell. “We didn't want re-enrollment to be a surprise,” he said. “Many participants made changes before re-enrollment.”

Employees who didn't make a specific election were defaulted into a target-date fund based on their age and assumed retirement date, Ms. Hutchinson said.

More than 70% of participants now have age-appropriate allocations, Ms. Hutchinson said. About 15% increased their 401(k) plan deferrals.

Also, 8% of nonparticipants have enrolled.

In addition, investments in the target-date series jumped to more than 50% of total plan assets from approximately 10%, she said.

Robert Steyer is a reporter for Pensions & Investments, a sister publication of Business Insurance.