Worried employees at Andrew Corp. have watched their 401(k)
funds tumble with the markets in the last couple years.
"There's some handwringing that employees are now going
through, because a lot of them never saw a down market,"
explains Jack Joyce, corporate manager of compensation and
benefits at Andrew, an Orland Park-based manufacturer of telecommunications
So, the company made a change last year "to prevent
knee-jerk reactions to the current market and help workers
make smarter long-term investments," says Mr. Joyce.
It added a link on its 401(k) Web site that allows employees
to access individualized financial consultations through a
Web-based service provided by Financial Engines, Palo Alto,
Calif. The program calculates an individual's risk tolerance,
expected retirement age and current investment choices among
the 14 options in Andrew's plan, then suggests an alternative
mix that could meet that worker's goals more efficiently.
About 90% of the company's 1,700 employees in the Chicago
area participate in the plan.
Workers may have been apathetic about investment education
before, but substantial financial losses in the equity markets
have spurred their interest, says David Wray, president of
the Profit Sharing/401(k) Council of America (PSCA), a Chicago
non-profit trade organization.
"When people are in pain, it becomes a teachable moment,"
Employees have generally grasped that long-term investing
should include a substantial percentage of equities and less
in choices like bond funds, notes Mr. Wray. But they don't
have a detailed understanding of how to diversify among equity
funds and re-evaluate the mix annually, he says.
In addition, the dizzying array of options employers load
onto their plans --; an average of 14.5 --; makes it harder
to allocate appropriately, he notes.
Traditional educational resources --; brochures, informational
Web services and annual seminars on market basics and general
asset allocation --; aren't enough to guide employees through
volatile markets, says John R. Stanek, chairman of International
Survey Research LLC, a Chicago-based company that polls businesses
nationwide on their benefits programs.
Opportunities to educate
Indeed, more Chicago-area employers are broadening their educational
options for participants in defined-contribution benefit plans,
such as 401(k) and profit-sharing plans, financial advisers
say. New resources offer personalized guidance through phone-in
services, Web-based tools, more-frequent seminars with financial
advisers and even one-on-one meetings with advisers.
A more radical approach allows employees to hand over total
management of their 401(k) account to outside investment management
professionals who choose allocations for them. But benefits
experts warn that it's illegal for companies sponsoring defined-contribution
plans to directly advise participants about investments. They
can, however, hire a third-party manager and simply make those
services available to employees. Even that can backfire, though.
"If employees think investment advisers have led them
down a primrose path and those investments turn out badly,
they could become profoundly angry with their employer for
offering it," Mr. Stanek says.
When Pharmacia Corp. changed its benefits plan last year,
workers at its Skokie office could phone the financial call-in
center of accounting firm Ernst & Young LLP for personal
guidance during open enrollment, says Peter J. McCauley, director
of pension and savings at the Peapack, N.J.-based pharmaceutical
giant. Ernst & Young is conducting a comprehensive pilot
program offering personalized advice to Pharmacia's New Jersey
employees, and the company expects to roll it out companywide.
Plan aid on hand
At Swedish-American Health System in Rockford, about 86% of
employees participating in the defined-contribution retirement
plan have authorized ProManage Inc. to make their allocations
and oversee their accounts, according to Tom Koelbl, vice-president
of human resources at Swedish-American. Chicago-based ProManage
offers investment services to companies with plans whose assets
exceed $100 million.
"(Employees) needed more help than what they were getting
from us," says Mr. Koelbl, adding that before the health
system began offering ProManage three years ago, it held general
informational meetings and distributed handouts, but employees
regularly asked for advice.
As plan sponsors, employers have a fiduciary responsibility
to educate employees about how to navigate a defined-contribution
plan and make autonomous decisions, says ,
a Chicago lawyer and financial planner and an adjunct professor
of law at Northwestern University School of Law. But when
workers want specific advice on which funds to pick, employers
can only make third-party experts available, he adds.
Mr. Joyce believes Andrew Corp. is meeting a real need with
the Internet-based advice program. However, managers don't
promote the service too forcefully, he notes. "If we
endorse something and an employee has negative returns as
a result, we would be concerned about crossing the line."