Dear Prudence

Offering company stock in employee 401(k)s may not always be wise. Just ask Lucent.

For example, 45 percent of companies with both types of plans offer immediate vesting on the employer’s matching contribution, compared with only 27 percent with just DC plans. In addition, some 34 percent of companies with both plans target communications to participants who don’t diversify, compared with only 18 percent of DC-plan-only companies. And 66 percent of companies with both plans have a formal investment policy in place, compared with just 45 percent of those with a solo DC plan.

The study also looked at the differences among plans when either the finance department or the human-resources department had more influence. When finance is in charge, the study found that DC plans were more likely to have a nonmatching company contribution, a discretionary company contribution, and employer-paid plan fees. Moreover, when finance exerts its influence, says Cochennet, the plans typically have “performance standards in place and [administrators] are more likely to intervene if things aren’t being done properly.”

The study was based on interviews with 252 defined-contribution sponsors, 58 percent of which also offered defined-benefit plans. The plans had total assets of $125 billion and averaged 8,100 employees per plan. —Lori Calabro

Double Rewards

Differences in features between companies that offer only a DC plan versus a DC/DB combo.
Source: William M. Mercer Inc.

Plan Design Both DB and DC Plans DC Plans Only
Eligibility: no age requirement 51% 30%
Eligibility: upon hire or within three months 50% 28%
Immediate vesting on the employer match 45% 27%
Immediate vesting on the profit-sharing contribution 43% 11%
Matching contribution automatically invested in company stock 26% 11%
Use interactive computer programs  48% 38%
Use benefit fairs 52%  31%
Provide individual counseling for terminating employees 58% 39%
Target communications to participants who don’t diversify 34% 18%
Target communications to employees approaching retirement 32% 22%
Measure the effectiveness of communication materials  57% 43%
Plan Management and Administration
Have a record-keeping service contract 69% 50%
Current challenge: underperforming assets  25% 37%
Current challenge: compliance issues 8% 17%
Performance-monitoring report provided by vendor 35% 54%
ADP: not highly compensated 5% 5%
ADP: highly compensated 6% 6%
Have a formal investment policy 66% 45%
Offer a stable value fund 70%  57%
Offer an indexed domestic equity fund 73% 62%
Offer an actively managed large-cap core domestic equity fund 27% 16%
Offer an actively managed mid-cap domestic equity fund 38% 51%
Offer company stock for employee-directed assets 43% 24%
Employee direction allowed for company matching contribution 71% 89%


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