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Originally posted by ltl/fb
2. Though, coverage for people over age 55ish, even if for the people 65+ it's only supplemental to Medicare, is fucking obscene, even on a group basis (provided the group is limited to this group -- reitrees). Perhaps not for people making bank like sebby, but how many people can afford $1k a month for health insurance?
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Employers may need to rethink their attitudes on 401(k) vesting and matching contributions if they want to increase employee participation in their programs, according to plan providers.
"The right plan design, along with an effective communications program, will bring you confident participants," asserts Sandy McCarthy, president of defined contribution services for CitiStreet.
Speaking to attendees at the National Defined Contribution Council's conference in September, McCarthy ticked off features that encourage 401(k) participation:
* Immediate eligibility
* A strong company match
* The right number and quality of funds
Fidelity Investments last month reported that its annual "Building Futures" study shows the percentage of eligible workers participating in 401(k) plans dropped two points from 2002 to 2003 and now stands at 66%. The Profit Sharing/401(k) Council of America, a Chicago-based non-profit association that promotes retirement savings, estimates that about 25% of eligible workers did not enroll in their employer's 401(k) plan last year.
The top reasons for nonparticipation are job insecurity, stock market volatility and reluctance to set money aside, according to McCarthy. Bill Sweetnam, a benefits tax attorney with the Department of Treasury, agreed, noting, "People will not save unless they know they can pull their money out for a certain kind of event."
One factor in plan sponsors' favor is that most investors are seeing their accounts headed in the right direction. Fidelity's study, which included 8.2 million plan participants, showed that the average 401(k) account balances last year increased by 25% from the year before, bringing account totals to $55,000.
Enrollment just first step
After convincing workers to enroll in a company retirement plan, the next challenge is getting them to consistently contribute enough money.
About 25% of 401(k) plans reported that participants contributed an average of 4% of their salary or less, according to a recent study by Mercer Investment Consulting. Fidelity reports that the average deferral rate remained steady last year at 7%. Only slightly more than 10% of the participants surveyed contributed the maximum $12,000 contribution limit in 2003.
When employees lack interest in or knowledge of investing, 401(k) enrollments suffer. "The needle just never moves in terms of investor knowledge," laments Jerry Bramlett, president of the 401(k) Company. "The reality is that employees aren't learning, and they have all these tools."
Employees tend to copy their neighbor's investing strategies, make guesses, choose the highest performing funds or take no action, Bramlett said. In the Fidelity study, for example, a quarter of participants reported holding only one investment option, and that was usually a conservative, slow-growth fund.
All this indicates that employers need to step up efforts to provide workers with investment advice, providers maintain. About 29% of employers provided individual investment advice this year, and the same percentage offered general financial education, according to the Society for Human Resource Management.
"We found that 93% of employees that spoke to an advice counselor actually felt better about their retirement savings," McCarthy noted. "Advice is certainly a compelling service that can boost confidence."
Sweetnam agreed: "Everybody agrees that investment advice is a really important thing."
Fostering trust
Confidence in the company managing the 401(k) plan is another key element, especially when the economy is flagging. Because of job insecurity and a sluggish economy, "the world feels like a scary place right now," Bramlett observed. "I think people are afraid."
In response to recent mutual fund scandals, plan sponsors are scrutinizing fee schedules and taking steps to guard against trading violations, such as market timing and late trading. About 50% of plan sponsors evaluate their recordkeeper's trade-monitoring process for addressing market-timing issues, and an additional 25% expect to do so during the next year, according to the Mercer study. Similar responses were given for addressing late trading issues. (For more on 401(k) fees, see EBN Sept. 15, page 64.)
"Employees bear the investment risk in a defined contribution plan, but it's up to the plan sponsor to offer competitive investment options and communicate the plan effectively, so that employees can take full advantage," asserts Perry Williams, a senior consultant for Mercer and an author of the study.
Meanwhile, Jim Owen, director of corporate values for Austin Capital Management, an Austin-based fund management firm, urged 401(k) providers to embrace a set of corporate values, such as courage and fairness, and always put customers before profits. "Our clients must be able to trust us to handle their assets. Our survival depends on it," he told conference attendees. - L.C.
Deadline fights 401(k) procrastination
Employers who impose a deadline for 401(k) enrollment may have more success boosting participation rates than those using standard communication methods, according to a study.
A company that required employees to choose within the first 30 days of employment whether or not to enroll in the 401(k) plan witnessed higher enrollment rates than under the typical arrangement of non-enrollment as the default, say researchers at Harvard University and other academic institutions.
Three months after joining the company, 69% of employees in the "active decision" cohort had enrolled in the 401(k) plan, compared to 41% of the standard enrollment cohort. Even after 30 months, participation for employees required to choose (83%) still exceeded that of those under the standard enrollment regime (69%).
The active-decision method is a good alternative for employers uncomfortable with automatic enrollment, says Lori Lucas, director of participant research for Hewitt Associates, which helped provide study data. It can also lead to higher contribution rates and more appropriate investment strategies among employees, she notes.
"There's been this sense that many people don't participate in their 401(k) plan because they can't afford to, but there's definitely a contingent that is just not getting around to it," says Lucas
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