Senior Execs Step Up to 401(k) Management Plate

The days of 401(k) plans being managed by human resources executives inexperienced in orchestrating investment decisions may soon be over. Ninety-four percent of senior executives at 125 companies surveyed by Cowden Associates said they are involved in selecting and monitoring fund companies, administrators and options in their company’s 401(k) plan, and scrutinizing fees. That’s up significantly from only 30% in 2007.

“Recent legislation, including the Pension Protection Act and the Supreme Court’s ruling that individuals can sue defined-contribution plan sponsors who mismanage their funds, has been a real wake-up call for plan sponsors," said Jim Bartoszewicz, executive vice president of Cowden’s defined contribution and investment advisory services. “In just one year, we’re seeing a significant shift in the way defined-contribution plans are managed.”

Senior executives are getting formally involved by sitting on their firms’ investment/retirement committees.

The survey also found an increase in the number of sponsors who automatically enroll employees from 16% in 2007 to 25% last year, and the number that automatically increase contribution levels was 10% in 2008, up from 7% in 2007.

“One clear goal of the Pension Protection Act was to increase the savings rate in defined-contribution plans by encouraging plan sponsors to automatically enroll employees in their plan and to automatically increase the participant’s deferral rates,” Bartoszewicz said. “We’re seeing a modest increase in both areas.”

Still, the survey found areas for improvement. Forty one percent did not know what their investment policy statement (IPS) contained. While that is down from 52% the previous year, it is still a disconcerting figure since the IPS spells out a plan’s investment objectives, according to Cowden. Further, 25% said their company didn’t have an IPS.