And that’s just from the humanresources staff. The real confusion begins when rank-and-file employees startwading into the details of their new plans. “If it’s self-directed, how comethere’s more paperwork than I thought there would be?” is one common lament.“Pensions are more complicated to understand, but it’s a once-a-yearreview,” he says. “Money is not flying in and out all the time.”Management of 401(k)s is “relentless,” he says. “It never quits.”
Fortunately, Kulchar, senior vicepresident of Cleveland-based Oswald Financial Inc., a retirement plan consultingfirm, dishes out lots of advice to the clueless and confused. Oswald has plentyof company. As plans proliferate, employers are finding themselves having toexplain apples to one group, oranges to another, and fruit salad to those whoseplans overlap.
Employers are well aware thatthey have to discharge their fiduciary responsibilities to employees byexplaining the legal limits of the plans, but in just the last 18 months, theyhave started to dig into the task of truly educating employees about how theycan be their own plan managers.
A Transamerica study revealedthat while 53 percent of employers say that they are personally very engaged inmonitoring their own retirement savings, 54 percent of employees don’t thinkthey know as much as they should and wish they had access to better advice. Anda survey recently sponsored by Mutual of Omaha indicates that most participantsin 401(k) plans have no idea how to invest and manage their assets. In fact,half of participants could not name any of the companies that provide investmentoptions for their companies’ plans.
There’s plenty of room forimprovement. Here are some strategies, tools, and tips that are starting toemerge as winners:
- Employersshould have and communicate an actual investment policy statement thatexplains how the offered investment plans are selected and monitored. It’snot enough just to choose a pretty-good-sounding investment adviser.
- Thepersonalized benefit plan just can’t be beat for conveying the long-termimpact of today’s decisions, says Todd Wold, a marketing communicationsmanager for American Express Retirement Services in Minneapolis. He findsthat employees who are choosing not to participate in 401(k) programsbecause they think it costs them too much are among the most easilyconverted by hard numbers and projections.
- Employeesoften want to make their investment decisions once and then go on automaticpilot, rarely paying attention to nuances such as how the balance of theirportfolio is affected by the different rates of growth of the assets itcontains. An annual personalized report that includes recommendations forkeeping the assets on track helps employees understand the inner workings oftheir portfolios, and the consequences of their decisions, so they canadjust accordingly.
- Employeeswho are accustomed to the old pension mentality can grasp the idea ofdefined-contribution plans by starting with defined-benefit terms, saysKulchar. In individual consultations, Oswald reps first find out what incomethe employee would like to have during retirement, and then work the numbersbackwards from that defined benefit to show today’s defined contributionin order to arrive at the desired goal. Once the saving decision is made,they can get more education on the specifics of plan decision-making, saysKulchar.
- Thelatest twist on the personal portfolio consultation is the virtual version.Intranets that enable employees to access their accounts to check onbalances have been popular for a while, but the latest generation ofretirement-account management tools goes a step further. Online calculators,worksheets, and formulas let employees play with a variety of differentoptions to see which ones they prefer. And because they can do it from homeor during spare moments at work, they’re much more likely to be engaged inexperimenting with what-if scenarios than if they had to work out eachscenario with a calculator and legal pad. Retirement consultants areoffering packaged software tools for exactly this purpose, such asTransamerica’s “Point, Click & Save” software, which letsemployees plug in income and savings rates.
Partneringwith local financial planners or a call center staffed with knowledgeableretirement plan customer-service reps are both quick ways to connectemployees with the level of detailed advice they may need, says Kent Klaus,partner with Arthur Andersen’s human capital practice in Chicago. Herecently worked with Motorola, Inc., of Schaumburg, Illinois, which has justinstalled a hybrid “portable pension” plan. Andersen conducted seminarsat Motorola facilities around the country to introduce the plan and staffeda call center during the enrollment period (and an intranet site, to boot).
“When you engage employees and force them to discuss the alternatives,it’s much more likely to sink in than when you just put things out thereand hope they read them,” says Klaus. “We’ve had client employees callthe center and say, ‘I’m not sure that I can retire with just thisasset,” and we say, “Well, you have a 401(k), too,’ and they say,‘Really?’ With a little extra attention, the value of these programswill rise, and companies will get more bang for their buck than they aregetting today.”
Workforce, December2000, Vol. 79, No. 12, pp. 68-70 Subscribenow!