State's scrutiny of 401(k) matches misfires

Massachusetts office asks some wrong firms for info; excludes some right ones

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William Galvin wants data on when employers were distributing their matching contributions to participant accounts.

The Massachusetts Securities Division targeted many of the wrong firms in questioning 401(k) record keepers about employers moving to an annual match instead of contributing each pay period.

Among those queried that are not record keepers are BlackRock (BLK) Inc. (BLK) and Barclays Global Investors, bought by BlackRock more than four years ago and no longer a separate company. Others include State Street Global Advisors, Invesco (IVZ) Ltd., Ameriprise Financial Inc., Legg Mason (LM) Inc. (LM), Galliard Capital Management Inc. and GE Asset Management Inc.

Many of the largest defined contribution record keepers were not among the 25 firms contacted. They include TIAA-CREF, Aon Hewitt, Great-West Retirement Services, Wells Fargo & Co. and Xerox Corp. Ltd.

“Galliard did receive a request on this (and) communicated with Massachusetts that Galliard is not a record keeper,” said company spokeswoman Jane Marie Petty in an e-mailed response to questions. “Since we don't provide record-keeping services, we told Massachusetts that we would not be responding to their inquiry.”

On Feb. 24, William F. Galvin, Massachusetts secretary of the commonwealth and chief securities regulator, wrote to 25 “companies that administer 401(k) employer-provided retirement accounts,” according to a statement from the agency.

Mr. Galvin, in his letter, said he wants to know the number of employers whose plans they administer that have shifted to year-end lump-sum matches, the number of affected employees and the date of the change. He also requested the disclosure information provided to plan participants as to the potential risks connected to lump-sum matches.

“We're trying to determine what information is being provided to participants of any changes in their matches,” Mr. Galvin said in a telephone interview. “This is a matter of critical importance to most employees. So the real issue here is to determine if this is indeed a trend.”

Mr. Galvin, who announced in October that he plans to run for re-election to a sixth term, also said in the interview that since the information that the agency is looking for is “of a general nature,” he expects the firms to cooperate.

When told that a good number of the firms Mr. Galvin's office queried aren't record keepers, Brian McNiff, a spokesman for Mr. Galvin said, “If that's what they say, that's what they say. We sought them out as providers of 401(k) administration services and we'll have to see how they respond.”

A news release from Mr. Galvin's office announcing the action mentioned three companies — Deutsche Bank AG, Frankfort; IBM Corp., Armonk, N.Y.; and Charles Schwab Corp., San Francisco — that contribute annually. Deutsche switched to annual from by the paycheck this year; IBM did so late in 2012; and Charles Schwab has always contributed annually.

AOL shift

Earlier this month, AOL Inc., New York, shifted to a year-end match from a per-pay-period one contributing each pay period, but switched back following negative reaction from the public and their employees.

One question Mr. Galvin wants answered is how common it is for companies to make their matches once a year instead of every paycheck, month or quarter.

A 2013 report from Aon Hewitt showed 8% of employers provide an annual 401(k) match, down from 9% in 2011. Plan Sponsor Council of America's 56th annual survey released in October revealed that 17.2% of 401(k) plans surveyed made annual matching contributions; 73.3% did so during their payroll period, while the rest made contributions either quarterly, monthly or in some other time period.

Among the record keepers receiving Mr. Galvin's letter, Eileen O'Connor, spokeswoman for Boston-based Fidelity Investments, said in an e-mailed response to questions that of the more than 20,000 record-keeping and other employee benefit services clients, “a very small number ... have moved in the direction of annual lump sum matching contributions.” She didn't name names, but did say they were “primarily large employers.”

“In general, we are not seeing a big shift away from the more traditional method of matching employee contributions per pay period,” Ms. O'Connor added.

Officials at most record keepers Mr. Galvin wrote to either wouldn't comment or didn't respond to requests for comment.

Mr. Galvin emphasized he doesn't suspect any wrongdoing. Rather, he wants to know what information is being offered to employees. “These decisions have long-term consequences to employees. So the question is, are they being informed of the effect?”

The letter seeks the information by March 10. Mr. Galvin said officials will assess the responses and determine where to go from there.

The 25 companies Massachusetts contacted
Fidelity Investments
State Street Global Advisors
Vanguard Group
T. Rowe Price Associates (TROW)
Principal Global Investors
Invesco (IVZ)
Merrill Lynch Investment Managers
ING
Prudential Financial
Northern Trust Global Investments
Ameriprise Financial
Franklin Templeton (BEN)
Legg Mason (LM)
Mellon Financial
J.P. Morgan Asset Management (JPM)
MFS Asset Management
Barclays Global Investors
Federated Investors (FII)
Invesco Investment Services
BlackRock (BLK)
MassMutual
Citigroup Asset Management
Harris Associates
Galliard Capital Management
GE Asset Management

Source: Office of the Massachusetts Secretary of the Commonwealth

This article originally appeared in the March 3, 2014 print issue as, "State's scrutiny of 401(k) matches misfires".