Two companies with special communication challenges are among the first wave of 401(k) plan sponsors to go to the Web for employee investment advice.
The Southwest Airline Pilots' Association, Dallas, and Blue Shield of California, San Francisco, each with about 3,000 participants, hired The 401(k) Forum, San Francisco, to provide their employees with specific and customized advice for investing their 401(k) plan assets.
Employees in each company will be able to access a company-specific Web site on the Internet and create a personalized and secure home page that will permanently store complete information about their 401(k) account. After answering a survey about their total financial picture, risk tolerance and retirement goals, 401(k) Forum's optimization model will create for each employee a customized asset allocation, based on the investment options available in their 401(k) plan. Employees eventually will be able to implement the suggested allocation instantly.
David Fisser, chairman of the 401(k) committee of the Southwest Airlines Pilots' Association, said he looked at traditional print education programs, but they were much too slow and cumbersome for a group as technologically sophisticated as airline pilots. "We're in instant gratification mode -- we're used to moving at 450 knots an hour. With a tool like The 401(k) Forum, pilots can get everything done instantly via the Internet. It's perfect for our demographics."
The pilots, said Mr. Fisser, are accustomed to doing all of their scheduling via Compuserve now, since the work force is scattered all over the country, works around the clock and never really comes into the "office."
"We don't have a traditional work force and we don't have a traditional work place. There's no time or even a place to come in for an employee meeting. We needed a different way to impart information to our group and the Internet seemed the best way," he said.
Pilots have been asking for specific asset allocation advice, Mr. Fisser said, and he was concerned they get some education along with very consistent advice. The methodology The 401(k) Forum uses to construct its asset optimization model is also very close to the way the pilots' association's 401(k) committee thinks, said Mr. Fisser.
The Southwest Airline Pilots' Association offers its participants an unbundled plan package, with 10 investment options from multiple managers. Hewitt Associates LLC, Lincolnshire, Ill., is the $411 million plan's record keeper. Mellon Trust, Pittsburgh, is the trustee.
The new investment advice program from The 401(k) Forum will be introduced July 1.
Blue Shield of California had tried many forms of print investment education materials, but it wasn't clear that employees were reading and absorbing the message, said Susan W. Hasselkuss, benefits administrator of the $80 million 401(k) plan. Company officials were concerned that employees weren't prepared to manage their assets, both in the 401(k) plan and outside: Blue Shield of California recently switched to a lump-sum distribution on termination for its defined benefit plan.
"We wanted to provide more education for employees in a form they could access from home. Because our production workers are on the telephone, we can't free them up to work on their 401(k)s at work. We had to make it convenient for them and in a format they will use," said Ms. Hasselkuss. Employees had requested more direction and some expressed a need for investment advice, which prompted the company to use 401(k) Forum, rather than a straight educational program.
The $80 million Blue Shield plan uses bundled services from American Express Retirement Services, Minneapolis. Six investment options are managed by American Express and one is from an outside manager, the PAX Socially Responsible Fund. Ms. Hasselkuss said the company is considering adding a small-capital- ization stock fund as an eighth option. The 401(k) Forum advice program will start June 1.
Not all of the bells and whistles that a plan participant eventually will be able to get on the Web sites are quite ready yet, said David A. Peckman, vice president-marketing at The 401(k) Forum.
The company is working hard to reach full automation. Next on the list is the establishment of a direct link to a plan's record-keeping system to put account balance information up onto the Web site. Next will come transaction capability, so employees can instantly implement the investment changes recommended by their personal profile.
The 401(k) Forum now has six clients for its advisory service, with many more companies close to making deals, Mr. Peckman said.
The cost of the participant advice service ranges between $20 and $50 per person per year, with one-time startup costs between $25,000 and $75,000. All current clients pay fees from corporate coffers.