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HELP!
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PROVIDERS
OF 401(K) PLANS HELP HUMAN RESOURCE MANAGERS EDUCATE EMPLOYEES ABOUT
THEIR RETIREMENT PLANS.
BY WILLIAM POE
In the world of self-directed 401(k) plans, cries for help are everywhere.
There’s Sam, the company employee who strolls into the human resources
department and asks whether he should invest in the bond fund or
the stock fund. “Help!” Sam cries.
Then, there’s Sue, the HR manager, who knows she is not a registered
investment adviser but who figures she has to tell Sam something.
“Help!” Sue cries.
Then, there’s Bill, the 401(k) plan trustee, who hears Sue’s cry
for help but who doesn’t know who should advise employees about
their investment options. “Help!” Bill echoes.
So, is there anyone to come to their rescue? Of course there is,
and the rescue squads have become their own cottage industry.
American Express Financial Advisors, for one, has established an
entire division—called Financial Education Planning Services—to
help companies step gingerly through the minefield known as the
Employee Retirement Income Security Act of 1974 (ERISA).
“It really helps the company to have an outside specialist come
in and provide needed information objectively while ensuring that
the 401(k) sponsor meets its fiduciary responsibility,” says Sylvia
DeWitt, field vice president for American Express Financial Advisors.
“That’s what we have the division to do.”
And Merrill Lynch provides a range of services to 401(k) sponsors
to help employers comply with complex ERISA rules.
“Someone in human resources is not licensed to give investment advice,
but he or she can hire someone like us to do that,” says Daniel
J. Henrichs, a vice president and certified financial planner with
Merrill Lynch. “We offer regular group meetings for employees, and
even one-on-one sessions with employees.”
Then, there’s A.G. Edwards & Sons, which “makes available to the
human resources manager a complete turnkey package incorporating
general education, investment advice, record keeping, trustee services,
plan administration, and government compliance,” says Bob Morgan,
an A.G. Edwards financial consultant.
BOB
MORGAN
financial consultant, A.G. Edwards |
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The need for 401(k) education has become more pronounced in the
last few years as more retirement plans have added self-directed
or even full-brokerage features that allow plan participants to
make investment decisions and as the recently retreating stock market
has prompted more employees to seek investment advice from their
employers.
The 2001 annual survey of the Profit Sharing/401(k) Council of America
found that nearly 70 percent of plans offered 10 or more fund options.
That percentage is up from 51 percent just three years ago.
“Yet when you ask most plan participants what they are invested
in, they’ll say they don’t know,” Morgan says. “And, if you don’t
understand what you own, you also don’t know how different market
conditions can affect your net worth. They need to know how the
market works.”
| "PEOPLE
TEND TO SPEND VERY LITTLE TIME ON THEIR 401(K) PLANS.
THEY SPEND MORE TIME PLANNING THEIR VACATIONS THAN
THEY DO REVIEWING THEIR RETIREMENT SAVINGS." |
|
Daniel
J. Henrichs
vice president & financial planner,
Merrill Lynch
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DeWitt adds: “Financial education in the workplace is becoming more
and more important. The workplace is really hungry for information.”
How to provide that information is key, financial advisers say.
In the case of self-directed plans, special federal rules are outlined
under section 404(c) of ERISA. Those rules are multifaceted, complex
and maybe even scary, because they tend to obfuscate other rules
regarding fiduciary responsibilities.
“With today’s 401(k) plans whereby it is the employees themselves
who direct the investment of their plan accounts, employers don’t
want to get themselves in trouble by offering investment advice,”
Morgan says. “Employers have to let employees make their own decisions,
yet employers are also required to provide enough information that
the employee can make intelligent investment decisions. There is
a fine line between offering investment advice and providing information
or education.”
That fine line is one reason why investment advisers say education
and investment advice is best left to professionals. Another reason
is that, although Section 404(c) exempts fiduciaries from liability
for the results of a plan participant’s exercise of control, the
section also mandates that plan participants be given sufficient
information to allow them to make informed decisions regarding the
investment opportunities available under the plan.
“If I were an employer interviewing for a new plan provider, I would
ask how the provider can help the company comply with the conditions
of 404(c),” Henrichs says. “The employer needs to know the characteristics
of a quality education service.”
For Merrill Lynch, which manages some $14 billion in client assets,
those characteristics include quarterly enrollment meetings, group
meetings and the opportunity for individual plan participants to
obtain investment advice from a professional.
“People tend to spend very little time on their 401(k) plans,” Henrichs
says. “They spend more time planning their vacations than they do
reviewing their retirement savings.”
American Express, which DeWitt says has $28 billion in 401(k) assets
under its management, offers free educational services to employers,
even to those who do not have their 401(k) plan with American Express.
“Here is a free service provided by the second most recognized brand
in the world,” DeWitt says. “It is something that really benefits
the company, and we can customize what they want from ‘a to z’ including
enrollment meetings, seminars and education.”
Henrichs says companies that provide 401(k) education to their employees
do much more than ensure that they comply with federal ERISA rules.
“Employers want their employees to end their careers with a lot
of money in their 401(k),” Henrichs says. “The better the job we
can do with the employees, the better the company plan performs
and the better the company looks when it recruits new employees.”
Now that’s something with which Sam, Sue and Bill can all agree.
| Soar
the New SOLO(K) |
EDWARD
G HENRICHS
assistant
vice president and senior financial advisor,
Merrill Lynch
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For those workers who are not part of a company with a traditional
401(k) plan, a new plan variously called a Solo(k) or a Uni(k)
may be the answer for retirement savings.
Designed for self-employed individuals (whether as heads of
sole proprietorships, corporations or partnerships) with no
full-time employees other than a spouse, the year-old Solo(k)
plan may be superior to the more prevalent Simplified Employee
Pension Plan (SEP), according to Edward G. Henrichs, assistant
vice president and senior financial advisor for Merrill Lynch.
Solo(k) contribution limits, Henrichs says, can be more generous
than those for a SEP-IRA and provide “a way to get more money
into retirement assets.” For example, by taking full advantage
of salary deferral and employer profit-sharing contributions,
plan participants in a Solo(k) can put up to $40,000 a year
into their Solo(k), and individuals age 50 and older can defer
additional pay under special “catch up” retirement provisions
And, unlike a SEP-IRA, a Solo(k) has a loan provision allowing
the owner to borrow against retirement plan assets. |
William V. Poe is principal of Poe Communications, a St. Louis
advertising and marketing communications firm. |
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