Paternal instincts: DC plan sponsors to take on more management

Sponsors of defined contribution plans will assume more of a management role in 401(k) plans, as plan participants increasingly cede control of their investment decisions, speakers at a Pensions & Investments conference said.

“People want their employer to tell them what to do in terms of their retirement,” said William McDermott, executive vice president at AXA Equitable Life Insurance Co., New York.

A more active or paternal role for plan sponsors was a common theme mentioned both openly and privately at P&I’s 11th Annual West Coast Defined Contribution conference in San Francisco Oct. 19-21.

Employees already are overburdened in addressing more immediate issues such as paying monthly mortgage bills and worrying about current employment and other non-retirement issues, the speakers said. The idea of making decisions about retirement, deemed far away, is simply off their radar or something they don’t want to make on their own.

“People are afraid to make those (retirement) decisions and want someone else to validate them for them,” said Michelle Berklacich, administrator at California’s Department of Personnel $6 billion defined contribution plan in Sacramento.

“We offer plan participants a lot of ways to get investment guidance, but people really want someone to sit down with them and say they are doing the right thing.”

Darrell Spence, vice president and economist at Capital Strategy Research in Los Angeles, one of the keynote speakers, said the current economic turmoil would lead to 401(k) plan sponsors having to increase employee “hand-holding” and simplify investment options.

Automatic enrollment and automatic increases in deferrals, as well as fewer investment options, help place investment decisions on automatic pilot or into the hands of more skilled professionals and out of the employees’ control, said Stuart O’Dell, director of retirement investments at Intel Corp., Santa Clara, Calif.

“We’ve had to simplify our investment options from 30 down to 17 choices, as we found too many choices had people paralyzed,” Ms. Berklacich said.

Some conference speakers — as well as attendees who asked questions at sessions —expressed concern that participants are trying to time the market, making investment decisions too late rather than being properly positioned to make them early.

The recent shift to stable value from equities after the equity markets sold off was cited as a prime example of how most participants don’t receive enough investment education and need help.

“I’m very worried; participants are not as educated as I thought on retirement,” Gay Lynn Bath, deferred compensation manager at the $775 million Oregon Savings Growth Plan, Salem, said during a panel discussion. “We need to run more workshops stressing more of the basics but trying to communicate to 22,000 people is hard.”

Courtney Turney, benefits analyst for the $324 million plan at Arch Coal Inc., St. Louis, said she was having a difficult time reaching her employees, who were too busy with their work to attend financial education meetings held during the day.

“We find we are dealing more and more with the wives on retirement as the men are busy working,” Ms. Turney said during a question and answer session.

Contact John D'Antona at [email protected]