Many large and medium-sized defined contributions plans are moving toward virtually paperless daily valued record-keeping systems, but the systems have been slow to catch on at smaller companies that might stand to gain the most from the new technology.
Such automation, serving as high-tech umbilical cords between plan participants and their accounts, was considered a pipe dream just five years ago.
Among the companies that have gone paperless:
American Stores Co., Salt Lake City, Utah, which made the decision to move to a daily valued, outsourced record-keeping system in 1989 for its $2.7 billion defined contribution plan.
Scott Bergeson, senior vice president of human resources, said vendors interviewed back then didn't believe it could be done. "We had some of the country's largest record keepers try to dissuade us from moving to a daily valuation system ...," he said.
Ames Department Stores Inc., Rocky Hills, Conn., which moved July 5 to a fully bundled service for its $60 million 401(k) plan, using IDS Institutional Retirement Services, Minneapolis. The plan's officials added more funds and moved to outsource all functions, said Bob Marth, director, benefits administration. Ames still uses paper forms for enrollment and beneficiary designations and made a deliberate decision to stick with hard copy loan authorizations for loans and hardship withdrawals.
American Family Mutual Insurance Group, Madison, Wis., moved to daily record keeping from monthly valuation about six months ago and updated to a fully automated system, including telephone voice response capabilities from State Street Bank & Trust Co., Boston. Part of the move included the addition of a loan feature for the $150 million 401(k) plan.
Colgate-Palmolive Co., New York, implemented a new design for its $700 million 401(k) plan in April, adding more fund options and moving as far as it could toward a paperless administrative system.
Like most companies revamping their plans, Colgate-Palmolive sought faster access to information and distributions of loans and hardship withdrawals, moving to a weekly valuation system (from monthly) from its existing record keeper, Kwasha Lipton, Fort Lee, N.J.
Reuters America Inc., New York, picked Putnam Investments, Boston, to take over plan record keeping on Jan. 1 from Bankers Trust Co., and will move the plan to daily valuation from quarterly, accelerating every process in the system and eliminating almost all the paper stream.
Prior to its shift, pioneer American Stores' own internal system involved a stream of paper, said Mr. Bergeson. Every administrative function and transaction confirmation required paper to be sent from a remote site to a central regional site, then to corporate headquarters.
"We wanted to strip away that whole middle layer of paper and give employees instant access by phone to their assets and whatever transaction they want to make," said Mr. Bergeson.
The company settled on Fidelity Institutional Retirement Services Co., Boston, which took over record keeping for the plan in 1992. For the American Stores plan, administration is almost completely paperless now. Aside from a few employees affected by restrictions on a grandfathered defined benefit plan, employees complete just one form, which is optically scanned and stored electronically by Fidelity. Every other administrative function - from enrollment and asset allocation and contribution changes to loans and final distributions - is initiated without paper by the participant via the voice response system or operators. Employees receive confirmation by mail.
Mr. Bergeson said his company's lawyers did "get all hung up on the need for paper" for loan authorizations initially, but eventually agreed that an employee's signature on the back of the distribution check constituted acceptance of the conditions of the loan, provided a truth-in-lending form was sent with the check.
He said the company has had "zero problems" with the loan feature, and safeguards itself by archiving tapes of all transactions and recorded conversations.
Employees gave the automatic voice response system a 98% satisfaction rating in a survey the company conducted this summer. Employees rank the voice system as the plan's best feature.
Robert Reynolds, president of Fidelity Institutional Retirement Services, said his company has seen a tremendous move toward paperless systems.
The degree of "paperlessness" a company decides to adopt is a function of what forms the employer wants to continue to disseminate and the forms the participant will request from the record keeper, said Alan Martin, managing director of the retirement services group at Bankers Trust Co., New York. Loan processing is one area where sponsors can save huge amounts of work by outsourcing, Mr. Martin said.
The subject of loans and hardship withdrawals and whether to move these transactions to an entirely paperless system is the one issue on which fund executives sponsors still differ.
Ames' Mr. Marth said the company's employee population is composed largely of store employees who are "relatively unsophisticated. We wanted to reinforce to them the terms of every loan they take out and to reiterate that every loan is an erosion of their only retirement benefit, the 401(k) plan. We really think it's the best protection for the employee and for the company to require a signature on the loan forms."
At American Family Mutual, Terry Mann, director of employee benefits, said: "We were a little nervous about going out on the cutting edge and not requiring authorization papers to be signed by the employee after a request for a loan ... It was just taking things a little too far."
The requirement for follow-up signature documents also gives employees a "cooling-off period," said Mr. Mann. The company has found there are a few more employee requests for loans every month than actual distributions.
But for many other companies, the quest for a paperless system could not go far enough.
Catherine Dillane, manager of benefits administration at Colgate Palmolive, said the company went from an all-paper system to the voice response system. Only three forms are still required to be signed by employees - the beneficiary designation, pre-payment of loans from the 401(k) and plan rollovers from previous employers.
"We would definitely have put these onto the voice system, too, if it was possible," said Ms. Dillane.
Deborah L. Klock, pensions manager at Reuters, said under the present system, her department is "inundated with paper because we are very dcentralized." But when the company moves to a virtually paperless bundled, daily valued system for its $90 million non-union deferred income plan on Jan. 1, she said, "I've pretty much outsourced myself and my department."
Many small plans, with less than 1,000 employees, have yet to hear the siren call of outsourcing and advanced technology. Aetna Life Insurance and Annuity Co., Hartford, Conn., has more than 13,000 small plans that use its 401(k) plan services, of which only 1,500 send employee data to Aetna on magnetic tapes. Only 300 use modems to transfer data. Most of the information concerning contribution levels, asset allocations information and other transactions are sent on paper to Aetna for data entry.
"One of the most limiting factors for a move to a paperless system, including a voice response system, is that plan sponsor's lack of acceptance of automated technology," said Robert N. Adams, director of distribution management at Aetna. "These companies would stand to gain the most from outsourcing a lot of these defined contribution plan administrative functions, but much of the time, they either lack the sophisticated computer systems to handle the functions or are downright suspicious of technology."
