Retirement benefits

OppenheimerFunds has launched a new educational campaign, including personalized communications, to allay 401(k) investors’, plan sponsors’ and financial advisers’ concerns about market volatility. Fidelity Investments and Charles Schwab, likewise, are conducting seminars and ad campaigns to walk investors through the merits of sticking with the markets and revisiting risk tolerance.

Congress is considering whether to make major revisions to the fair-value accounting rules that have created so much controversy lately. Possible changes include suspending the rules, improving value-at-risk measurements and reinstating the uptick rule.

The mutual fund industry is eager to hear the outcome of a U.S. Supreme Court case that could determine the fate of the Gartenberg standard, an old legal precedent used to determine whether mutual fund fees are too high that has set a high burden of proof for investors and spared the industry from lawsuits.

Despite the plummeting economy, most 401(k) participants are staying calm and behaving normally, according to 2008 year-end data from the Investment Company Institute.

Approximately 37% of investors are participating in target-date funds when their employer offers one, according to the Employee Benefit Research Institute.

Putnam Investments will waste no time reinvigorating its defined contribution business, and its long-struggling equity funds will have to earn their way into the mix, according to Robert L. Reynolds, its president and chief executive.

Over the past year, as the S&P 500 has hit 1997 levels, the U.S. gross domestic product shrank 6.2% in the fourth quarter of 2008 and investors' retirement savings have been severed in half, we have hailed the resilience of investors' faith in the markets. Our customers have continued to believe in the soundness of investing in mutual funds, the premise of long-term investing and modern portfolio theory, and the overall wisdom of saving for retirement.

In order to achieve meaningful reform of the financial services industry, Congress should create two key regulatory positions to oversee financial markets, according to a proposal last week by the Investment Company Institute.

In response to the market downturn and wide confusion among investors about what they should do, Charles Schwab has published a number of articles on its website offering guidance. Schwab is also holding seminars at its branches, town hall discussions and webcasts.

For the first time in seven years and after the sorry lessons of Enron and WorldComm, investors poured more money into company stock, $65 million, than they did any other investment category in January, according to Hewitt Associates.Betting on one’s own company’s success at a time of massive job layoffs is not seen as a terribly wise decision. “In this economy, you’d expect people to move in the other direction, trying to diversify their risks,” Pamela Hess, director of retirement research told The Wall Street Journal.“Obviously, they’re not understanding what they’re buying,” added Shlomo Benartzi, an economics professor at the University of California, Los Angeles.Today, two-thirds of employees in 401(k)s with more than 5,000 employees are offered company stock, and about 8% of employees invested in company stock have 80% of their portfolios invested in it.It is possible that instead of matching employee’s contributions in 401(k)s, employers are offering stock, experts said.

In spite of the market downturn, the trading services that Fidelity Investments provides for intermediaries is doing a brisk business, the company announced Thursday.Daily average commissionable trade, new breakaway brokers joining the platform, equity order flow, prime brokerage and adviser-sold 401(k) plans are all doing well. Combined, the divisions serving these markets had $1.1 trillion in assets under administration by the end of last year.Daily commissionable trades rose 18% in 2008 and averaged 259,000 and 314,000 in September and October. Fidelity also sold 702 new Fidelity Advisor 401(k) plans in 2008, up 36%. Money market assets rose 44% to a record $137 billion, and 102 breakaway brokers selected Fidelity as custodian.Assets in Fidelity’s prime brokerage services also rose, by 127%, aided by a 57% increase in new clients. “Despite arguably one of the most volatile business environments in recent memory, we repeatedly demonstrated our ability to help intermediary clients navigate challenging financial markets,” said Michael K. Clark, president of Fidelity Institutional Products Group. “Our ability in 2008 to achieve record trading volumes, equity order flow and institutional money market flows, among others, was a direct result of the trust our diverse base of clients placed in the strength and reputation of Fidelity,” Clark added.Even in this challenging market environment, Fidelity plans to continue to invest in these businesses’ technology, trading tools and services in 2009.“We are in an unprecedented business environment that is rapidly transforming the financial services industry, and those firms which do not have all the pieces to serve these converging markets and new financial business models will be at a competitive disadvantage,” Clark said.

The chairman of the Senate Special Committee on Aging has called for more scrutiny of target-date retirement funds after several 2010 target-date funds posted huge losses in 2008.

For all the education the asset management industry has on the importance of saving for retirement, it doesn't appear to have gotten through to the younger crowd, many of whom have completely unrealistic expectations for their golden years.

Reports of the death of stocks and equity mutual funds have been greatly exaggerated.

Putnam Investments will waste no time reinvigorating its defined contribution business, and its long-struggling equity funds will have to earn their way into the mix, according to Robert Reynolds, its president and chief executive."We're going to run an open platform," he said. "Yes, it would be great if Putnam was part of the choices, but if not, for whatever reason, that's fine."Reynolds, who took over the company in July, started Fidelity Investments' 401(k) business from scratch and turned it into an industry giant. He is now trying to work quickly to create similar magic at Putnam."Competing for Fortune 100 companies may not be a goal right out of the chute, but we definitely want to be out there this year with a competitive product offering," he said. "This is not a five-year game plan; I think we can be a player in a relatively short period of time."Leading the charge will be Edmund Murphy, a Fidelity veteran Reynolds hired early last month as the head of defined contribution. He will report to Putnam's global marketing and products head, Jeffrey Carney, a Fidelity and Bank of America Corp. veteran Reynolds hired in October. "I think the team we've put together thus far is pretty impressive," Reynolds said.Success in defined contributions would give Putnam some badly needed good news. On Feb. 11 it announced plans to cut 260 jobs, or 11% of its work force, as part of a changed distribution strategy. Its assets have dropped more than 60% in the past six years, to $101 billion as Jan. 31. A 2003 market-timing scandal, several years of poor equity mutual fund performance, and last year's market meltdown have left it battered.Marsh & McLennan Cos. Inc. sold Putnam in 2007 to Canada's Great West Lifeco Inc. for $3.9 billion.Reynolds' earliest initiatives at Putnam were aimed at reversing the losses in its equity funds, which he admits were performing "to no one's satisfaction." A restructuring of the equity investment division announced in November put responsibility for each fund in the hands of a specific manager and created a pay-for-performance system.Putnam has also hired dozens of fund managers, analysts, and others on the investment side.It also pruned its fund lineup, and early this year it announced the industry's first suite of target absolute return mutual funds. The funds, which Reynolds said he envisions as a component of Putnam's 401(k) offering, are designed to provide positive returns over time in rising or falling markets.Tom Modestino, a senior analyst with Cerulli Associates Inc. in Boston, said in-house management of a large number of 401(k) assets is increasingly important in the 401(k) business, since asset management, not record keeping, drives profits. "Record keeping in the 401(k) industry is expensive, and it never gets cheaper," he said.A spokesman for Putnam said it will target plans with $1 million to over $500 million in assets. It was a power in the 401(k) market in the 1980s and 1990s, but Mr. Reynolds said after the dot-com bust, it backed away from the administrative side of the business to focus more on distribution of its funds.The sinking stock market does not change the fact that 70 million baby boomers are set to retire, he said, and the number of 401(k) administrators is poised to shrink.Reynolds said Putnam wants to be a major player in asset management and product development, plan administration and education, and service delivery for sponsors and participants. "If you are going be a player in the 401(k) business, you have to have a commitment to all three legs of the stool," he said.

401(k) plans in which employers match contributions have contribution rates as much as 9 percentage points higher than those that don’t, Fidelity Investments found. And when combined with immediate vesting, contribution rates climb to 11 percentage points higher.

The average account balance of 401(k) investors that MassMutual administers fell 25% in 2008, but, nonetheless, participants are sticking with the plans.

Investment Company Institute President Paul Schott Stevens testified before the U.S. House of Representatives Education and Labor Committee on Tuesday to avow that the 401(k) model is working, in spite of the market’s downturn.

With vastly lowered expectations for retirement, investors appear more amenable to annuities and other income-generating investments whose scaled-down returns they might not have considered before, NAVA found in a survey of 1,500 financial advisers.

Morningstar has developed a series of 18 asset allocation indexes for investors and advisers to use as benchmarks for target-date and target-risk funds.