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Sponsors of 401(k) Plans Say Concerns Today Unchanged Despite Market Upheavals

While turmoil in the financial markets over the past several years has whipsawed many 401(k) plan participants, sponsors of those plans say their concerns today are not much different than they were 20 years ago. Ralph Egizi, Director of Benefits Finance and Foreign Exchange for Eastman Chemical Co., says those concerns continue to revolve around offering participants an adequate number of high-quality, well-diversified investment options.

Among the steps his company has taken to meet that challenge, Egizi said at the SVIA 2003 National Forum, were the introduction of lifestyle funds as an investment option, and, more recently, a restricted directed brokerage option. As evidence of the company's success in creating an attractive investment platform for its participants, he noted that a high percentage of participants leave their assets in the $1.1 billion plan when they retire from Eastman Chemical.

Donald Butt, Vice President of Qwest Asset Management Co., says his organization has worked to improve the $2.6 billion plan it oversees for Qwest Communications International, too. For example, the plan has given participants more freedom to diversify out of company stock, which is what Qwest uses to make matching contributions to the plan. As has been widely reported, holding company stock in retirement plans became a hot-button issue after Enron Corp. imploded, leaving many of its employees holding suddenly worthless Enron shares in their retirement accounts. At Qwest, Butt said, participants since last year have been able to swap their company stock for alternative investments in the plan as soon as the day the shares are received. This year, Qwest also began offering an investment advice service to plan participants, accessible either via the Internet or through advisors over the telephone, in an effort to help them become smarter retirement investors.

Like Qwest, the Cultural Institutions Retirement System, which administers employee benefit plans with combined assets of $935 million for 370 participating employers, has also begun offering investment advice services to its defined contribution plan participants. Robert Fox, Executive Director of the organization, credits the advice service with raising deferral rates among participants who use the service to nine percent of salary, versus an average of 5.27 percent for the plans' participant population as a whole. His participants also make a generous commitment to Stable Value funds, which at the end of August accounted for 68 percent of the plans' total assets. "We are very comfortable with that," Fox said. He added that two factors contribute to the Stable Value fund's popularity. For one year, it was the only investment option available to participants when their defined contribution plan was launched in 1986 through a plan-to-plan transfer of employee contributions from a defined benefit plan. Also, it is the default option for participants in the defined contribution plan who do not take action to choose any other investment options.

At the Federal Reserve Employees Benefits System, which manages a thrift plan for the employees of the Federal Reserve, Chief Investment Officer Paul Lipson said one of his long-standing concerns is to make sure plan participants have access to high-quality, principal-protected investment options. He does that by making available to them a Stable Value fund that invests in traditional Guaranteed Investment Contracts, or GICs. As of July 31, the Stable Value option accounted for a whopping 72.1 percent of all the assets held in the nearly $3.1 billion plan. While that is high in comparison with most plans, Lipson argued that plugging the relevant personal data for plan participants into almost any mean-variance portfolio model would suggest, for most participants, an allocation to Stable Value in excess of 50 percent.

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