ARMONK, N.Y. - IBM Corp. is breaking new ground by providing corporate-sponsored financial planning services for personal and retirement savings to its U.S. work force.
Observers say IBM probably is the first major U.S. company to do so, as well as the first to allow external financial service firms access to its national work force with the purpose of providing specific investment advice on retirement and other savings vehicles.
Such a move makes IBM the largest, and possibly the first, U.S. company to step over the boundary between educating employees to make the right investment choices in their defined contribution plan and providing investment advice through third-party financial planners.
IBM, with defined benefit assets of $27.7 billion and an estimated $6.2 billion in defined contribution assets as of Sept. 30, implemented the program earlier this month.
One component is advice from financial planners on investment choices within employee defined contribution plan accounts, where appropriate.
IBM selected IDS Financial Services Inc., Minneapolis, and Merrill Lynch, Pierce, Fenner & Smith Inc., New York, as the service providers.
Buck Consultants Inc., New York, assisted in developing the program, selecting the financial services firms and training IDS and Merrill Lynch representatives to provide a full picture of IBM's benefits and corporate culture.
"It's clearly a new area, extremely new. IBM is on the cutting edge here," said Jeff Croyle, a partner at Kwasha Lipton, Fort Lee, N.J. "Everyone has identified a strong need for financial planning for participants, which includes strong modeling and projection of future retirement savings needs, as well as for personal savings goals. But so far, only a few large companies are seriously considering the provision of financial planning on an individual basis.
"If this type of personal financial planning proves successful and encourages participants to save more and get more active in the 401(k) program, as well as for private savings goals, there will be a much bigger second wave of companies jumping to add the services."
One of IBM's primary objectives is to encourage employees to start planning for retirement and other savings goals, such as college education funding, much earlier in their careers. IBM is seeking to move out of a paternalistic role and to encourage employees to take responsibility for retirement savings, and all personal financial matters.
"Our goal is to promote understanding and appreciation of all of IBM's benefits and to provide employees with the support, the tools they need for financial planning on all levels, integrating all of our benefits," said Dianne Nalin, project leader in WFS Workforce Solutions, IBM's separate human resources company, based in Mt. Pleasant, N.Y.
"We are also hoping to increase awareness of and participation in IBM's investment offerings - the 401(k) plan, the employee stock purchase plan, IBM Investments (mutual funds and CD products offered through IBM Credit Corp.) and our group insurance products. Our goal is to emphasize the shared responsibility for financial security, and by providing options for employees to take an active role in planning, we think we will be very successful."
Both financial planning firms will provide free group employee education meetings and initial one-on-one consultations with a financial counselor.
Employees may apply all or part of a $250 annual subsidy from IBM to obtain a personal financial report, which would contain customized objectives to meet savings goals for retirement, college funds, home down-payments and other needs. The price of the report would range from $140 to $400.
All financial planning sessions must be initiated by the employee, and are customized to include IBM's benefit offerings. IDS and Merrill Lynch representatives are prohibited from marketing their products to participants within the context of the planning sessions or to make any direct contact with employees.
However, Ms. Nalin acknowledged both companies are free to accept participant business once the written analysis has been performed.
"Any business gained by either company from IBM employees is outside the scope of the personal financial planning program," said Ms. Nalin.
IBM has been careful to word its benefits literature so as to remind participants that any decisions they make on the basis of their financial planning are entirely the responsibility of the participant.
But some observers have strong reservations about allowing free access to employees by firms like IDS and Merrill Lynch, which have aggressive retail investment products for sale by financial planners with commissions riding on those sales.
J. Michael Scarborough, president of Scarborough Group, Annapolis, Md., a provider of 401(k) advice and account management services directly to individual employees, said there is a potential for abuse of less sophisticated investors.
"For many people, between 80% and 85% of their total net worth is tied up in their 401(k) plans. That's a real motherlode of money. Under the new IRS tax rules, effective Jan. 1, 1993, active employees have the option to move their defined contribution plan assets out of the plan into IRA roll-over accounts. One of these days, one of the personal financial planners involved in a situation like this is going to wake up and see that pot of money and get serious about moving some of it to his company's products. Do you think this won't happen? It will."
IBM's Ms. Nalin countered, "We have extremely satisfied customers in the (401(k) plan). We are not worried at all about this type of occurrence. Our 401(k) plan is meeting the needs of participants extremely well."
Other observers point to the trend of employers to offer more complete investment management services to employees, verging on advising participants about exactly where to invest retirement assets.
Said Lou Valentino, director of the defined contribution practice at The Wyatt Co., New York: "In order to really help participants to plan for the future, you have to look at a broad spectrum of assets, not just retirement assets. You really need all the components of the puzzle together to determine proper asset allocations for the pension assets.
"There's clearly a trend for employers to begin to step beyond just institutional investment issues to look at the total picture. There's a move afoot to provide advice, as well, not just education and suggestions, but it's so new, we can't be sure yet if it's a wave or a ripple. It's an upstart activity.
"The real question is where the liability lands when advice is being given to participants on investment issues," said Mr. Valentino. "It sounds like IBM has put some distance in there, and you have to assume they've had full legal advice on the subject."
