Retirement benefits

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.

Waddell & Reed of Overland Park, Kan., will add two new share classes to its Waddell & Reed fund family in order to target supermarkets, 401(k) plans and wrap programs, the company announced last week.

The majority of 401(k) participants choose lump-sum cash payouts when changing jobs instead of rolling over money into their new employer's plans or IRAs, according to a study by Hewitt Associates, a management consulting firm in Lincolnshire, Ill.

Although assets in socially-responsible funds have grown from $1.185 trillion in 1997 to $2.16 trillion in 1999, socially-screened funds are under-represented in 401(k) plans, said mutual fund industry executives.

More than one-third of people who invest in IRAs, plan to use them as investment vehicles to bequeath money to their children or other heirs, according to a survey by American Skandia Life Assurance of Shelton, Conn.

Mutual fund companies providing 401(k)'s or other types of defined contribution plans may be in for a rash of lawsuits foiled by unhappy 401(k) investors, say industry executives and consultants.

T. Rowe Price of Baltimore, Md. recently filed with the SEC to offer a new class of shares in an effort to improve distribution of ten funds to variable annuities, defined contribution plans and wrap programs, according to a company spokesperson. The new shares will include a 12b-1 fee of 25 basis points.

The number of employees switching asset allocations in their 401(k) programs increased in the month of January, according to an index released by Hewitt Associates of Chicago that measures the daily activity of 401(k) assets of 1.5 million employees.

John Hancock Funds of Boston, has teamed up with Standard & Poor's of New York to provide retirement services to more than 1,000 companies nationwide.

Pure-play, or sector funds, are beginning to show up along with the usual investment options of 401(k) plans: large-, small- and mid-cap, growth and value investments, according to industry executives.

The average account balance for active 401(k) participants grew by 26 percent from 1996 to 1998, largely due to the continuing bull market in equities, according to a recent study by the Employee Benefit Research Institute and the Investment Company Institute, both of Washington, D.C.