401(k) Internet use falls short of expectations

While Internet usage by 401(k) plan sponsors and participants is growing, it has not become the hoped-for solution to handling all of the administrative and investment needs of plan sponsors and participants.

"The Internet will never be the sole tool (for 401(k) plan activities) because people like to get information different ways," said Lori Lucas, director of participant research at Hewitt Associates, Lincolnshire, Ill.

David Wray, president of the Profit Sharing/401(k) Council of America, Chicago, said while web availability and usage are growing, "we're a long way from its full potential."

The main problem is that most people just don't want to use the Internet for everything, and some people can't, either because they don't know how or they don't have access to computers. For instance, many plan executives are concerned about security when making participant loans, final distributions and other similar transactions. And, many plan participants still want their quarterly statements on paper and aren't able to use the advice services.

"All they've done with the web is add another access channel," said Don Bartolai, who runs the defined contribution plan consulting business for Mellon Human Resources and Investment Solutions, Chicago. "A lot of companies have workers in the field who don't have access to computers."

"The web is about participant self-service," said Mr. Bartolai. "Not everyone can take advantage of self-service."

"The potential of the Internet, from an administration standpoint, is high," said Mr. Wray. However, he added, many people are not at a "comfort level" with the Internet that would allow it to be the "primary solution" for 401(k) plan administration.

Mr. Bartolai pointed out that the world of the paperless 401(k) plan is nowhere near happening. "There's an intrinsic value people associate with getting a quarterly statement on paper that they can hold in their hand," he said.

Ben Brigaman, senior vice president with Charles Schwab Corporate Services, San Francisco, noted 63% of the 450,000 401(k) plan participants for whom Schwab is the provider want to get their quarterly statements on paper, not over the web.

Data from the most recent PSCA survey indicates that more plan sponsors are making the Internet available to plan participants, but there is still a lot of room for growth. In addition, the survey reports what services are available over the Internet, not how many participants are actually using it.

Enrollment was one of the main areas where administrators had hoped to see benefits from the Internet. According to the PSCA's survey of 1,046 sponsors of 401(k) plans, 35.3% allowed Internet enrollment in their 401(k) plans in 2002, vs. 13.3% in 1999. While that's certainly an advance, it's not as much as plan providers had expected.

"Signing up is a challenging issue," said Mr. Wray. "Leaving it to the Internet won't be successful in getting new hires to join the plan. You have to talk to them early and often."

Hewitt's Ms. Lucas added: "If you're trying to get people to join a plan, you need an e-mail or paper-based communication."

She also noted that according to past Hewitt surveys, 30% to 40% of 401(k) plan participants "are not engaged enough (or have enough interest in the plan) to use tools on the web. "If you really want to get them to use it, you may need a more proactive approach. We encourage sponsors to use other channels."

Many expected almost all contribution changes to be made over the Internet by now, But according to the PSCA survey, 56.8% of plan sponsors permitted participants to make contribution changes over the Internet in 2002, vs. 33.7% in 1999. "Many companies have had concerns about security," said Mr. Wray, explaining why the number isn't higher.

Ms. Lucas said Hewitt data showed only one in six 401(k) plan participants made a transaction in which they moved money between funds "in any manner whatsoever" in 2003.

Participants do use the Internet regularly for one thing, however: checking their investment balances, he said, and 89.1% of plan sponsors allow Internet balance inquiries, up from 62.9% in 1999. That's one area that "has been very successful," said Mr. Wray. "Lots of people check their balances 24/7 on the Internet, and it has cut down on calls to the human resources departments."

Information from plan sponsors gives a mixed picture of Internet use by 401(k) plan participants.

Jill Youmans is vice president of human resources and global benefits at Kraft Foods Inc., which has a 401(k) plan with more than $1 billion in assets and 50,000 participants. She said about 75% of 401(k) plan transactions by salaried employees are done over the Internet, compared to about 20% for hourly workers.

The reason is obvious: "People working in plants don't have access to computers," said Ms. Youmans.

The story is pretty much the same with Swift Denim Textiles, Columbus, Ga., which has a $101 million 401(k) plan. "We're a manufacturing company, and people don't have access to computers," said Roy Cureton, corporate human resources manager. He said about half of the work force had made 401(k) plan transactions using the Internet in 2003.

At Atlanta-based Bell South Corp., Internet usage has been higher. Spokeswoman Leanne Hanson said that 68% of the participants in the firm's defined contribution plans, which have a combined $6.3 billion in assets, have used the Internet for at least one type of transaction in the past year.

And it should come as no surprise that the computer-savvy employees at IBM Corp., Armonk, N.Y., use the Internet for many of their 401(K) plan transactions.

According to corporate spokeswoman Kendra Collins, 90% of participants in IBM's $22 billion 401(k) plan use the Internet for enrollment; 91% use it to make investment choices; and 95% use it to make changes in their contribution rates. She didn't give statistics for other Internet uses.

The large 401(k) plan providers — including Fidelity Investments, Boston; The Vanguard Group, Malvern, Pa.; and T. Rowe Price Retirement Plan Services, Baltimore — report high Internet use among the 401(k) plan participants for which they are provider.

Tim Buckley, chief information officer for Vanguard, said 99% of the firm's 3,200 401(k) plan sponsor clients have access to the Internet and 75% of all asset allocation and contribution changes are done online.

Fidelity's NetBenefits website for plan participants has 500,000 unique visits per month, meaning no more than 5% of participants are using it. Fidelity has 12,000 401(k) plans as clients, accounting for 8.6 million participants..