NEW YORK - Interpretive bulletins from the Department of Labor have eased some concerns for sponsors of defined contribution plans, but proposed regulations threaten to add new concerns, speakers at Pensions & Investments' Defined Contribution Conference said.
Indeed, formal and informal discussions about the federal government's role in overseeing defined contribution plans permeated the two-day conference, cosponsored by International Business Forum, New York.
In a panel discussion, Ian Kopelman, a principal and ERISA specialist at the Chicago law firm Shefsky, Froelich & Devine Ltd., said the line between investment education and advice is clearer.
Under the Labor Department's interpretive bulletin, plan sponsors that provide information about plan features and investment options, without referring to a particular investment vehicle or individual participant, are likely to be protected from fiduciary liability, he said.
But conference Chairman William J. McHugh Jr., director-trust funds at CIBA-Geigy Corp., Ardsley, N.Y., noted fund executives are worried about proposed Labor Department regulations in response to employer abuses of employee contributions. One proposal would greatly shorten the time employers have to deposit employee contributions; another would require plan auditors to blow the whistle on plan non-compliance. Mr. McHugh said the regulatory initiatives would greatly increase the cost of providing defined contribution plans, to the degree many companies might drop the plans altogether.
Such a result would be a shame, said Mr. McHugh, in light of the strong partnerships many companies have forged with their employees to provide vehicles for retirement savings, augmented by employer matches.
Innovations encourage savings
Among the most exciting innovations to encourage higher savings and better plan management, Mr. McHugh said, are the connections to plan data via the Internet participants have begun to demand.
Mr. McHugh's said the more varied the media of communication, the more likely plan sponsors are to reach a wider variety of their employee population. His belief was supported by the many creative approaches to investment education presented by the conference speakers.
Determining the best practices for defined contribution plan management - from the selection of investment options to design of effective investment education programs for participants - was the focus of the conference, held in New York Jan. 22-24.
The conference, "Case Studies in Successful Defined Contribution Strategies," featured defined contribution fund executives discussing solutions to such problems as lower-than-desired plan participation, fiduciary liability and selecting and monitoring investment managers.
The conference culminated in the presentation of P&I's second annual defined contribution investment education awards and presentations from some of the winners, who shared their most effective education strategies.
Several speakers reported strong results - in the form of changes in participant investment behavior - from investment education programs. Among them were executives at Whirlpool Corp., AT&T Corp., U S WEST Inc., Price Waterhouse L.L.P. and Toro Co.
At AT&T, Berkeley Heights, N.J., the educational campaign accompanying a new bundled 401(k) plan for management employees introduced in September 1994 resulted in a move of about a quarter of the plan's $12 billion in assets to new, less conservative plan options. The plan's allocation to company stock, a problem because of the asset class' potentially high volatility, was reduced to 36% at the end of 1995 from 43% in September 1994, said Stephen L. Fordham, savings plan administrator.
Even better, a company survey of employee satisfaction with the new plan changes had a very high (20%) response rate from employees, who were overwhelmingly happy with their retirement plan. Ninety-two percent said they were satisfied with the plan and investment options; 78% said they understood the plan and how to use it; 78% also said they were satisfied with the quality and diversity of plan investment options; and 69% said they felt confident about their investment decisions.
Investment education programs also can increase participation, several speakers noted.
Participants get Toyota's message
A consistent, repeated message was critical in steadily increasing the plan participation at Toyota Motor Manufacturing USA Inc., Georgetown, Ky. Participation in the 401(k) plan already was 73% in September 1990, but swelled to 89.5% in September 1995.
Suzanne Spicer, benefits specialist, attributed the increase to the repetitive use of a special benefits logo to help employees identify any materials that came to them describing plan changes and benefits. Each message passed along to participants showed how easy it is to save and explained how simple the investment options were to use, removing common perceptions blocking saving habits.
The introduction of a voice-response system in 1994 also made account access very convenient, said Ms. Spicer. Annual benefit fairs have carried a strong retirement plan emphasis, and the internal Toyota television network helped to highlight the retirement plans and draw attention to the benefits of plan participation.
An internal Learning Resource Center houses books, videos and software programs to augment the company's employee meetings and enables employees to check out materials to share with spouses.
Toyota's education and communication programs apparently have convinced many employees not only to participate in the plan, but also to try to maximize their retirement savings potential.
While the employer match is 50% on the first 6% of an employee's salary contributed to the 401(k) plan, the average employee contribution is 8.2%.
Education also seems to have helped asset allocation, as employees have been investing in less conservative investment options. As of September 1995, 52% of plan assets were invested in equities, compared with 39% in guaranteed investment contracts, 5% in a money market option and 4% in a bond fund.
Investment debate rages on
Defined contribution plan sponsors and consultants continued the debate over the right number of investment options.
Consultant Ruth Hughes-Guden of Rogers Casey & Co. Inc., Darien, Conn., said the most important consideration was not so much the number of options, but rather the potential for diversification of employee assets.
A focus on asset classes - not the manager or fund family - is a valuable way for sponsors to emphasize the need for portfolio diversification, she noted.