LYNDHURST, N.J. - The results of a recent survey of defined contribution plan employers by the Alexander Consulting Group Inc. correlate an absence of investment education provided by plan sponsors with a dramatic lack of participant familiarity with investment and retirement planning principles.
While 95% of the 162 plan sponsors responding to the survey offer defined contribution plans and 92% allow participant direction of investments, only 50% of companies offer investment education and only 37% provide retirement planning assistance.
Not surprisingly, 79% of employers said they did not think their employees really understand how much they need at retirement to maintain their standard of living. A whopping 92% of respondents said they believed plan participants do not know what combination of deferral rates and investment returns they will need to supplement Social Security and defined benefit plan payments. This finding was supported by further evidence from the survey, which reported 69% of respondents said their defined contribution plans hold less than 55% of total assets in equity funds - an indication of overly conservative investment allocations by participants.
Although employers were firm in their belief that employees lack understanding of basic retirement planning principles, only 22% of responding human resource and employee benefit staff said they expect problems with older workers who do not retire voluntarily at an appropriate age because they feel they cannot afford to do so.
Ironically, despite a marked lack of investment information, employees do seem to understand the importance of saving within a defined contribution plan. For instance, 64% of respondents said their participation level was 75% or better. Those employees seem to be deferring a healthy portion of their salaries: 70% of responding companies reported the most popular contribution rate within their plan is between 4% and 7%.
The Alexander Group survey did not ask employers what measures they planned to take to improve participant investment knowledge levels.
BALTIMORE - T. Rowe Price Associates is developing a PC-based interface that will allow defined contribution plan sponsors to extract participant information from the firm's mainframe computer.
Some of T. Rowe Price Associates' more sophisticated defined contribution plan clients had been frustrated by the lack of an easy way to pull data from the current mainframe-based record-keeping system.
"It's really frustrating to know the data is all there, but we can't get to it without a big hassle," said one corporate client at T. Rowe Price's client conference in Palm Springs, Calif.
A T. Rowe Price spokeswoman said the new interface will be made available in the first half of 1995.
NEW YORK - Charles Schwab & Co. plans to launch a new employee education product on the basics of mutual fund investing for 401(k) plan sponsors, according to Lynnda Sarinske, vice president of the Pension Administrators Service.
By the end of 1995, the firm expects to compile a series of materials, seminars as part of a curriculum in which plan sponsors may enroll their employees.
The product will be part of Schwab's OneSource program for pension administrators, which enables more than 300 pension administrators to invest on behalf of clients in 117 Schwab mutual funds on a no-load, no-transaction-fee basis.
In another 401(k) market initiative, by the second quarter of 1995, Schwab plans to introduce same-day order entry across 900 mutual funds in its Mutual Fund Marketplace. The firm wants to be a step ahead of bundled service providers in that it will be able to offer the technology to plan participants across multiple fund families. Currently, Schwab offers next-day order entry.
NEW YORK - New York Life Insurance Co. Inc. is readying a bundled 401(k) plan service to be offered through its subsidiary, New York Life Asset Management, Parsippany, N.J. The company expects to have the full-service program running by Jan. 1, said Jeff Boyce, senior vice president of registered products.
The service will use record-keeping capabilities from its New York Life Benefit Services unit, formerly ADQ Inc.
New York Life has not been in a position to offer one-stop 401(k) plan services until now, said Mr. Boyce, although the company managed more than $18 billion for defined contribution plans as of Sept. 30, primarily in guaranteed investment products. Record-keeping services have been offered through alliances with third-party administrators, said Mr. Boyce. The new bundled service will integrate record-keeping and administrative services with investment management options provided by New York Life mutual funds. The company does not intend to include mutual funds from external providers in the bundled service, at least at the outset of the program. Voice-response systems, employee communications and investment education also will be provided as part of the service, which is targeted at midsized plans, said Mr. Boyce.
Jim Wironen joined New York Life Benefit Services as its marketing director, a new position, from State Street Bank & Trust Co., Boston. Mr. Wironen was director of marketing for State Street Solutions, the bank's bundled 401(k) plan service. His 401(k) marketing duties have been assumed by Ted Miller, a senior vice president in State Street's mutual fund division, said Gus Fisher, a spokesman for State Street's mutual fund division.
NEW YORK - Ernst & Young LLP introduced PROSPER, a comprehensive personal financial counseling software package for defined contribution plan participants. The educational software allows employees to incorporate retirement savings planning with other saving goals - such as college education and home ownership.
PROSPER is flexible. The package can be used by a plan participant to compute a single analysis, such as comparing different loan packages, or to prepare a comprehensive savings and retirement lifetime plan. The program also provides and recommends specific investment selections. PROSPER users also have the option to capture and integrate real-time financial data from Reuters Money Network in their financial analysis. Stock, bond and mutual fund market data are automatically downloaded into PROSPER's calculations.
Ernst & Young will provide PROSPER as a stand-alone software package or as part of a more comprehensive employee education program, including employee meetings, newsletters, videos and voice-response help lines.
Also at Ernst & Young, William J. Arnone joined Ernst & Young as a partner of the national personal financial counseling unit, where he will direct financial counseling services to large plan sponsors. The PROSPER software package is one of the new tools Mr. Arnone's unit will use, said Colette Murphy, a company spokeswoman.
Mr. Arnone's position was created, said Ms. Murphy, to help Ernst & Young position itself to better serve the defined contribution plan market.
Mr. Arnone had been national director of pre-retirement and financial planning for Buck Consultants in its Secaucus, N.J., office. Mr. Arnone's duties at Buck have been assumed by Richard Koski, who is also director of the firm's participant education services division, said Carolee Martin, a company spokeswoman.
BOSTON - Massachusetts Financial Services Co. introduced a turnkey bundled 401(k) plan package for third-party administrators.
The MFS 401(k) Recordkeeper Plus program enables an independent employee benefits administrator to offer a full-service, daily valued 401(k) program - including investment management through MFS mutual funds exclusively, participant-level and plan-level record keeping, employee communications and investment education, a toll-free voice response system, loan processing and compliance and tax reporting.
WASHINGTON - The Kiplinger Editors Inc. has introduced a new series of on-demand Mutual Fund Reports, using data from Morningstar Inc., Chicago, and software technology from Avenue Technologies, San Francisco.
Capitalizing on the success of its personal finance magazine and its line of personal finance videos and computer software, Kiplinger is making the reports available to retail and institutional investors for $7.95 each.
Each report uses Morningstar data and provides extensive performance records, portfolio characteristics and investment objectives. It also includes Kiplinger's risk-adjusted grades for each fund. The service covers almost 4,000 mutual funds.
Marlene Givant Star contributed to this column.