401(k)

At the height of the bull market, employee benefits packages were used to recruit new talent, but with massive layoffs occurring across the economy, those packages, including 401(k) benefits, are being trimmed.

A poor economy and rising unemployment rates are making an already difficult defined contribution market even harder for plan providers. Because plan sponsors are occupied with more pressing business concerns in a difficult economic environment, changing or adding a plan provider to their defined contribution plan is not a priority. That has made gaining market share very difficult for many 401(k) providers, say industry observers.

The Department of Labor last week endorsed a proposal in the House of Representatives that would allow 401(k) investors to receive advice from employer-sponsored financial planners, giving the initiative renewed momentum and prompting its proponents to assert that the House will pass it by year end.

As fall approaches, Thomas Clough, the president of New York Life Benefit Services, is excitedly readying a team of marketers to walk into office buildings and talk to workers of all ages and all incomes about their 401(k) plans.

A lot of Americans are looking at the short-term when it comes to their retirement plan balances. Thirty percent of investors who faced a choice about their plan balances, either because of leaving a job or retiring, said they took a cash payment, according to a recent study by Putnam Investments of Boston.

The average American worker's confidence in his ability to retire comfortably is declining, and fewer workers are actively saving for retirement this year than last year, according to a recent survey. In fact, roughly four out of every 10 respondents indicated that they are unsure if they will have enough money to live comfortably throughout their retirement, according to a survey issued earlier this month by the Employee Benefit Research Institute of Washington, D.C.

Nationwide Financial Services of Columbus, Ohio has come up with an innovative approach to providing asset management services to publicly-held 401(k) sponsors that allows employees to actively trade shares of their employers' stock within their 401(k) plans.

Michael Perez recently became president of Emplanet, a provider of automated 401(k) services based in Westborough, Mass. Perez gained prominence in the 401(k) industry as a senior executive for Fidelity Investments' Retirement Service Company in Boston. As a Fidelity senior vice president of sales, he sold plans to companies such as Shell Oil, United Airlines and John Deere and maintained total assets of $20 billion. At the start of his 15-year tenure at Fidelity, he played a key role in the development of bundled 401(k) services, which quickly became an industry standard, according to Emplanet. He was also in the forefront of Fidelity's entry into pension and health and welfare administration in the early 1990s as well as its payroll and human resources information services programs. Before joining Fidelity, he was assistant vice president for the Northern Trust Corporation, where he performed investment analysis. He spoke with freelance reporter John P. Mello Jr. on issues affecting the 401(k) industry.

INVESCO Funds Group of Denver announced last month that Manulife Financial and Sun Life Financial, both of Toronto, have added INVESCO products to their annuity product lines. Last week, the company announced that several INVESCO sector funds have been added to the product lines of five more insurance companies.

Convincing companies to become sponsors of new 401(k) plans can be an extremely difficult task. That is a concept that Persumma Financial of Newton, Mass., part of the MassMutual Financial Group, should understand well.

Twenty percent of the nation's 37 million 401(k) plan participants who seek outside investment advice, rely on advice from mutual fund representatives, according to a new study from Spectrem Group of Chicago. That is largely because the majority of plan sponsors, 84 percent, offer no investment advisory services to their employees, according to the study. The results of the study were released by Spectrem Group last week.

Young adults under 35 who have retirement accounts with Fidelity Investments of Boston are well prepared to meet their retirement needs. On average, if they sustain their current savings rates, they are likely to cover 124 percent of their retirement needs. However, those 35 and over are likely to fall short. If they sustain their current savings rates, those in the 35 to 50 age group are likely to be able to cover only 60 percent of their retirements needs while those over 50 are likely to have enough to cover only 27 percent of their needs.

A growing number of 401(k) plan participants are seeking a brokerage option within their 401(k) plans, according to a soon-to-be released study conducted by Hewitt Associates of Lincolnshire, Ill.

Defined contribution retirement programs have seen rapid expansion over the past decade. But, defined contribution business will be undergoing a slowdown, as alternative investment options increase, market returns decline, and retiring baby-boomers begin to remove assets, according to a study released last week by Strategic Insight, a mutual fund research and consulting company in New York, and NewRiver, an online financial service provider in Andover, Mass.

A significant number of investors in retirement are planning to increase their contributions to their 401(k) plans and become more aggressive in their allocations in 2001, according to a recent survey by Fidelity Investments of Boston.

If Ted Benna, the originator of the concept of 401(k)'s, has his way, 401(k)'s could become completely flexible, portable, and participant-directed within the next ten years.

If new employees were automatically enrolled in 401(k)'s, mutual fund companies might collect assets from the 15 percent of the population that fail to sign up for 401(k)s, fund executives and consultants said.

Standard & Poor's Retirement Services, the investment advisory subsidiary of Standard & Poor's Investment Services of New York, has received an exemption to the Employee Retirement Income Security Act. The exemption will safeguard it and plan sponsors who use its services against fiduciary liability.

Mutual fund companies should take note of 401(k) plan sponsors' growing interest in co-mingled funds, a defined contribution alternative to mutual funds that offers lower fees, according to industry executives and consultants.

Fund companies are increasing their efforts to provide advice to 401(k) plan participants in order to develop a relationship that will steer a greater percentage of the assets rolled over from 401(k) plans to them, according to industry analysts.