IBM Corp. has set a precedent that, ultimately, other large sponsors of employee-directed defined contribution plans should follow.
IBM is providing the opportunity for its employees to get one-on-one financial planning advice for their defined contribution plan assets, and is, in fact, subsidizing this financial planning.
The objective is to help the employees invest those assets wisely, and to integrate all of their IBM benefits. Of course, the guidance will also promote an understanding and appreciation of the IBM plans. This is the benefit to IBM.
The benefit to the employees is that they will have professional help to invest the assets that will ultimately finance their retirement years.
Investment decisions are difficult enough for professional investors. It takes a combination of information, understanding, time and effort to make correct long-term investment decisions.
Most employees find the process daunting. They lack the information and understanding, and find it difficult to make the time and summon up the effort. For younger employees, in particular, it is difficult to focus on decisions that will have their payoff only years in the future - especially when they have many more pressing decisions that need immediate attention.
The availability of professional financial advice directly attacks the information and understanding gap and indirectly attacks the time and effort problem.
The financial counselors can provide the information and understanding to employees. They will ask the right questions, seek the necessary information about each employee's financial situation and risk tolerance, and then guide the employee to a solid long-term investment posture.
And with the financial planners available to help, the employees may be encouraged to find the time and make the effort, especially as the planners will share the effort.
In addition, IBM's $250 annual subsidy sends a message to all employees that the company regards this as a serious matter to which they should pay attention.
Many employers are treading warily what they regard as a fine line between investment advice and investment education. A few, such as U S WEST Inc., are making investment counseling available at reasonable cost to the employees.
But in order to encourage employees to plan properly for their futures, employers may have to be bolder, like IBM.
If employers are not themselves willing to provide real investment advice, and if most employees are unwilling or unable, without a push and some help, to make use of worksheets or computer programs, then perhaps third-party financial planning assistance is one answer.
It may not be the answer for small companies, who probably will find the $250-per-person cost of the IBM plan beyond reach, but large corporations should consider it.
Otherwise employees may be left vulnerable to one of the greatest risks attached to defined contribution plans - the risk of not having enough money to retire on because of poor investment decision making.
If too many employees fall victim to shortfall risk, the cries of disappointment will be heard all the way to Washington. Then employers may find they have been penny wise and pound foolish when they decided not to provide the investment guidance employees need because it cost too much.