Most of the largest corporate 401(k) plans have adopted formal investment policy statements, and a number of them say they would consider offering investment advice to plan participants if allowed, according to Pensions & Investments' first survey of corporate 401(k) plan sponsors.
The survey found:
* More than one third of the plans responding (37%) intend to make additions to their investment choices within the next year.
* Of those responding, 80% of plan sponsors indicated their plans offer both daily valuation and daily switching capabilities.
* Only about 20% of the 50 largest plans use bundled service providers.
* The bulk of large plan sponsors (68%) utilize some or all of their defined benefit managers to manage a portion of their 401(k) plan investments.
* The number of plans matching employee contributions was evenly divided between those who use a cash match and those using company stock as a match.
* In the wake of the Department of Labor's granting an exemption to TCW Group, allowing it to provide direct investment advice to plan participants, 20% of respondents indicated they would consider allowing service providers to provide investment advice, if allowed by the DOL.
P&I surveyed the largest corporate 401(k) plan sponsors. The data used for this story are based on information provided by the 50 largest plans.
The outsized number of large plans claiming to have written investment policies for their 401(k) plans surprised some investment consultants. Many had claimed not long ago that the number of plans with written investment statements was between 5% and 20% of the overall market. (Pensions & Investments, Oct. 13, 1997) And, while some consultants still believe the overall number of plans with written policy statements remains small, they believe larger plans are more likely to have adopted investment policy statements.
"If you look at the pure number of plans out there, I certainly think the number (with formal written policy statements) is far less than 65%," said Mary Simcox, defined contribution practice leader for Sedgewick Noble Lowndes, New York. "The larger the company and the longer the plan has been around and grown, the faster and larger the plan has grown. Larger plans would probably tend to be more likely to have a policy statement."
Gary Blank, president of Gary Blank & Associates, a San Francisco-based defined contribution consulting firm, said larger plans are more likely to have in-house legal counsel to ensure plans meet any potential fiduciary compliance issues.
The large plans, he said, are more likely, therefore, than small and midsized plans to at least have "minimal" policy statements "to meet DOL scrutiny when or if that happens."
ADVICE ON AGENDA
Among the more cutting-edge developments, seven of the largest plans said they would consider using one or more of their current service providers to provide investment advice to their plan participants if cleared to do so by the Department of Labor.
TCW Group, Los Angeles, received a prohibited transaction exemption to begin offering investment advice to its bundled clients later this year and others are expected to gain similar approval.
Companies which indicated they would permit or urge their service providers to furnish investment advice, rather than education, to participants are Shell Oil Co., AT&T Corp., BellSouth Corp. E.I. Dupont de NeMours & Co.; Pacific Gas & Electric Co., Prudential, and US WEST Inc.
A spokesman at Shell said the oil company is "evaluating" several financial planners, including vendors and that, "we hope to give them access to our participants" if all legal requirements are met.
STILL ADDING OPTIONS
The P&I survey results are consistent with industry trend of 401(k) plans continuing to add investment options to keep pace with participant demand and to insure they meet investment guidelines.
Among the top 50 401(k) plan sponsors that plan to add investment options to their plans during the next year are Chrysler Corp., which plans to add index funds; American Stores Co., which is plans to add mutual fund options and DuPont which plans a brokerage option. In addition, Abbott Laboratories responded that it plans to add an international fund, an S&P 500 index fund and small-cap index funds. Amoco Corp., plans to add passive index fund and mutual funds.
Prudential Insurance Company of America, Delta Air Lines Inc., 3M Co., Xerox Corp., Texaco Inc., and General Electric Co. all stated that they plan to add options, but did not specify the types.
Richard Dunn, program manager-qualified plans at GE, said the exact number and type of investment options which might be added has not yet been determined. But, he said, "We are almost certainly looking at adding one, and perhaps two."
Mr. Dunn said GE has been gathering input from both its union and non-union participants, and found that participants are seeking more choices in order to diversify their portfolios.
One possible addition, he said, would be some form of global investment fund to compliment the domestic investment selections already available.
Margaret Ann Cole, principal at the Kwasha Lipton Group, Fort Lee, N.J., said the demand by participants for additional options seems to be growing as participant account balances swell.
"That's why I like self-directed brokerage options (which include the capability to buy and sell individual stocks and bonds as well as a broad range of mutual funds)."
She said many large 401(k) plans have too many core investment options which are "unmanageable" for the typical participant.
She said plans adding new options are "reacting to technology which allows them to have several options and are reacting to the increased knowledge level on the part of participants and employees as the market continues to move up. People are becoming interested in a broader range of investments such as foreign funds, global and niche funds that they may never have had before."
Ms. Cole said the demand for new options probably will continue to grow as account balances increase in size.
"When you have a $250,0000 account balance, you are more likely to be looking for additional investment vehicles in order to diversify and utilize these newer investment funds," she said.
On the matter of investment advice, Ms. Cole said there is a pent-up demand among plan participants for investment advice.
"Plan sponsors have been looking for people to cross the line from education to offering advice; participants are looking for someone to tell them where to put their money," she said.
"A lot of it has to do with the environment we are in today, participants have seen what is going on in the market and many don't read the (investment education) materials provided by the plans. Some of them (participants) feel unqualified to make investment decisions and want some help," she said.