In the News

Firms Diversify 401(k) Support More Options for Investment Help

Monday, February 24, 2003
by Judith Nemes

Crain's Chicago Business

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 products.

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," he adds.

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."

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