Furthermore, the bar for employee training is rising. “We’re seeing education move from [training in] overall plan design to much more individualized and personalized education,” says Alford. “We’re also finding that what participants want is not education, but advice.”
In light of such changes, CFOs are rethinking the quality of their education efforts. Some can be quite self-critical. Southwest Power Pool’s Dunn, for instance, gives his organization high marks for its match — 75 cents on the dollar up to the first 6 percent of salary deferred — and its range of 19 investment options. But he feels that his company hasn’t always been up to snuff in terms of education.
As evidence of that, Dunn says, the average age of company employees is 40, and 20 percent of the plan’s assets are invested in cash and cash options. When he looks at such figures, the CFO feels that participants might not end up with enough to retire on. To remedy the situation, the company has brought in a registered investment adviser to meet with employees one on one and review their investments, retirement goals, and risk profiles. Many employers have long been wary of providing such a service because of fears that poor advice might lead to poor investment performance, and, in employee lawsuits. Indeed, under ERISA, workers can sue employers for providing a poor range of investment choices, as well as for conflicts of interest on the part of the adviser. But a 2001 Department of Labor advisory letter enabled sponsors to offer advice based on third-party analyses. Bills currently before Congress could also protect employers from liability incurred by investment advisers they hire for their plans.
Less-than-stellar participation rates can also lead to second thoughts about 401(k) education efforts. While an 80 percent rate at Arrow Electronics appears decent, the participants are heavily concentrated among white-collar workers, says Paul Reilly, CFO of the Melville, New York–based distributor of electronic components and computer products. To gain more-equitable participation, Arrow sends fund managers and its benefits teams to its distribution centers so that hourly employees can learn directly about 401(k) investing. “The biggest challenge we have is educating people in our hourly employee base who don’t have as much disposable income,” the finance chief says.
Of course, no list of best practices would be complete without a reminder to measure everything. The best metrics underlying 401(k)s are straightforward: the percentage of participants, the size of their accounts, and the growth potential of their investments. Practically all the features in today’s top-performing plans are aimed at driving toward a 100 percent employee participation rate and a rate of income replacement for employees at retirement in the range of 70 to 85 percent, according to CFOs and benefits experts.
David M. Katz is deputy editor of CFO.com.