WASHINGTON - Sponsors of the nation's largest defined contribution plans have increased employee participation, but still want the Labor Department's assistance in differentiating between investment education and advice.
The Committee on Investment of Employee Benefit Assets, Washington, surveyed its 468 members' defined contribution plans and found that of the 4.9 million employees eligible to participate in these plans, 95% of them did in 1994. What's more, 98% of those participating in a defined contribution plan are also covered by a defined benefit plan.
The survey showed 75% of plan sponsors used periodic newsletters to keep participants updated on the funds' progress; 88% intended to use them this year.
But these plan sponsors, who manage $234 billion in assets, haven't ventured too much into the '90s way of getting the message across.
According to the survey, only 12% used video training in 1994, while only 18% used personal computer software and account modeling techniques. One reason for their hesitation is fear such efforts could be construed as giving investment advice instead of simply educating the employee. If a plan sponsor or a service provider gives investment advice, it automatically becomes a fiduciary to the plan, and can be held liable for employees' investment decisions.
Another reason is some plan sponsors do not have the resources, said Gina Mitchell, director of government relations at the Financial Executives Institute, Washington. CIEBA is a committee of FEI.
Exxon Corp., Irving, Texas, which has $6.7 billion in defined contribution assets for U.S. employees, is planning to venture into computer modeling for its participants in March. The new modeling program will allow employees to input their own financial information, including outside income and debt, to figure out what they need to retire.
"We think we're coming up with something very comprehensive," said Jim Bayne, vice-chairman of CIEBA and its defined contribution subcommittee. He's also manager-benefits, finance and investments at Exxon.
And every step of the way, company officials are checking with company lawyers "to make sure what we're doing isn't going to get us into trouble," Mr. Bayne said.
It's mostly the larger plans that are providing information through computers and videos, said Robert Hahnen, chairman of CIEBA's defined contribution subcommittee, and manager, global benefits-finance for Mobil Corp., Fairfax, Va.
"These companies don't have the legal fears, and that's what needs to be overcome" in the smaller companies, said Mr. Hahnen, who manages a $4.2 billion defined contribution plan for Mobil.
Here's where Labor Department guidance is needed, Ms. Mitchell said. Many plan sponsors have been on hold because of the investment advice issue, she said.
"I think if the Department of Labor comes out with a pronouncement that makes the distinction, I think a lot of plan sponsors will go further with their programs," Ms. Mitchell said.
The Labor Department has been trying since last year to issue guidance for plan sponsors. Labor Department officials don't want their guidelines to conflict with provisions in the Investment Advisers Act of 1940.
Labor Department officials have been working with the Securities and Exchange Commission, and expect the bulletin to be out early next year.