WASHINGTON - The structure of a 401(k) plan might affect employee contribution rates more than previously thought, according to a study by the Employee Benefit Research Institute.
An analysis of the practices of three large 401(k) plans found older employees appeared to be constrained by maximum contribution limits (either by the plan or Internal Revenue Service regulation).
The report theorized that older employees are more focused on retirement and more likely to want to save as much as possible, often well beyond the specified limits.
Younger workers focus on the employer match, contributing just enough to gain the full company match.
This phenomenon also is evident between wage classes at a given company. Lower-paid workers tended to contribute only enough to get the full company match, while higher-paid employees contributed the maximum permissible. The report also suggested that legal contribution limits may be too low to allow workers to save enough for retirement.
The EBRI report suggested said employers concerned whether 401(k) plan participation provides employees with adequate replacement income should raise the percentage of salary on which the company match is based.
Vanguard online at AOL
MALVERN, Pa. - The Vanguard Group of Investment Cos. will enable shareholders - including participants in defined contribution plans for which Vanguard is the record keeper - to access their accounts through America Online.
The Vanguard Online Account Access service allows participants to obtain account balances, get information on recent transactions including contributions, loans and loan repayments and obtain daily closing share prices and price changes for Vanguard funds and the current allocation of plan contributions.
More than 200 employer-sponsored plans with 260,000 participants are accessible through the service so far.
Many fund companies have been slow to go online because of security concerns, but Vanguard claims to have addressed the problem. Shareholders need a confidential password to log on to America Online, and the service's registration process requires shareholders to provide a Social Security number, a plan number and personal identification number when necessary.
Seminars for Dow employees
MIDLAND, MICH. - Dow Chemical Co. is using Price Waterhouse L.L.P. to offer free financial planning seminars to its employees on issues ranging from rainy day funds to investment options in the company's 401(k) plan.
The company also is giving employees software to plan their personal finances and a $100 reimbursement to employees who seek further advice from a personal financial professional.
Plastic to the rescue
CINCINNATI - Fifth Third Bank now is allowing defined contribution plan participants to pay loan processing fees and existing loan balances with credit cards.
Because many sponsors will not allow loan distributions to be made until receiving the loan fee, participants will get significantly faster loan distributions by charging to plastic, said Sandra L. Lobert, vice president of institutional trust. Fees typically range from $50 to $100.
"The waiting period for a participant's check to be received and cleared can be unacceptable to some participants and is a long-winded process for us and the sponsor. An instant charge to the credit card will make the process much smoother and faster," Ms. Lobert said.
Employees in plans that permit only one outstanding loan may be able to get around the provision by charging the loan balance to credit cards. With the balance cleared, employees can generally take another loan from their DC plan assets.
The bank's data processing subsidiary, Midwest Payment Systems, will handle logistics.
Price Waterhouse reports offered
HARTFORD, Conn. - CIGNA Retirement and Investment Services has struck a deal with Price Waterhouse L.L.P., New York, to offer two levels of financial planning reports to defined contribution plan participants.
Using data from the plan sponsor and CIGNA's record-keeping system, Price Waterhouse's Savings Report will analyze a participant's savings rate and investment choices against his or her retirement income goals. The second product, the Personal Financial Analysis Report, is prepared using data from a detailed participant questionnaire to analyze more closely all financial aspects of the employee's life, including college savings, insurance, estate planning and home purchase.
Cost ranges from $10 to more than $250 per participant, depending on the cost of setup, the number of plan participants and the level of customization. Price Waterhouse contracts directly with the plan sponsor to provide the service. CIGNA officials said they recommend the Price Waterhouse service to sponsors because of the accounting firm's objectivity and independence.
Marlene Star and Vineeta Anand contributed to this column.
