Crossing the Line

More 401(k) plan sponsors are taking investment education a big step further by offering employees advice.

Adam Kelly’s retirement plan is in surprisingly good shape for a worker who’s only 24 years old. He diverts 5 percent of his salary to his company’s 401(k) plan, dividing his contribution equally between two stock funds, one that invests in small, fast-growing companies and another that focuses on larger companies that also have good growth rates. Kelly, a digital color specialist for BFS Business Printing, a commercial printer in Boston, knows if he keeps it up he could have 150 percent of replacement income when he retires in 41 years, assuming, of course, that equities reproduce the average annual return of 15.4 percent that they have achieved during the past 20 years.

What makes Kelly act more like a 44-year-old than someone 20 years younger? His employer spends $20 annually to provide Kelly with a personalized report that suggests an optimum savings rate and asset allocation model. Then, Roxanne Fleszar, a certified financial planner with Peabody, Massachusetts-based Financial Resources Management Corp., visits BFS twice a year to help Kelly and the company’s 94 other employees choose appropriate plan funds to achieve their goals. “Without the report, I wouldn’t be saving as much or knowing where to invest,” he says.

Adds John Merrill, CFO and treasurer of BFS: “We have to provide enough information to explain to employees that unless they save, they are going to have to work all their lives. And most of our employees take it seriously.”

Like BFS, a growing number of plan sponsors feel compelled to provide investment advice, not just generic education, to 401(k) participants. “Employees seem to need this,” says Lisa Crosby, benefits manager of Fujitsu America Inc., in San Jose, California. “We try to give as much education as possible, but employees come back and say, ‘I’ve read through everything, and I still don’t know enough to diversify the way I should.’”

Last year, Fujitsu bit the bullet and brought in 401k Forum Inc., an online third-party advisory service based in San Francisco. Crosby rolled out the service to most of Fujitsu’s 17 American subsidiaries in January. “With 17 different companies in different locations, there is always the chance that an employer representative might answer the question, ‘How would you do [it] if you were me?’” she says. With 401k Forum, the representative can respond, “I can’t answer that for you, but here is a site where you can find the answer.”

Today, 14 percent of plans offer access to advisory services, according to technology research firm Forrester Research Inc., in Cambridge, Massachusetts. An additional 62 percent of human-resource executives say they would consider providing unambiguous, direct- investment advice. “You can’t pick up a newsletter or magazine without reading about advice,” says Kathy Guthormsen, benefits and risk manager for Autodesk Inc., a $617 million software company based in San Rafael, California. “We, as plan sponsors, feel that ultimately we face more liability if we don’t give people advice than if we do.”

Many sponsors aren’t so sure. In 1996, the Department of Labor (DOL) clearly warned that anything beyond generalized education could turn the plan sponsor into a fiduciary for plan performance–a potential legal liability most sponsors are loathe to assume. Sponsors and their plan providers and educational firms can illustrate generalized asset-allocation models for different investor types, such as investors close to retirement and investors with years to spare. But they can never recommend individualized asset-allocation plans or endorse specific funds to buy.


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