Time to check on retirement crew

The Baltimore Sun

Has your retirement-benefits department done anything for you lately? It's time to check, as pressure mounts to lower fees and boost services to participants in workplace savings plans such as 401(k)'s.

In a poll of 190 medium to large companies, 55 percent of those that provide a 401(k) plan said they intend to perform a review of those operations this year, including a look at overall expenses and indirect payments related to winning and keeping business. Hewitt Associates, a Lincolnshire, Ill.-based human resources consulting firm, released the survey last month.

"Employers [are] under more pressure than ever to effectively manage two sides of the retirement equation: minimizing risks and unnecessary costs, while optimizing the benefit that employees will get from their retirement programs," said Alison Borland, Hewitt defined-contribution consulting practice leader.

Congress is considering legislation, and the Labor Department is working on regulations, to require more disclosure of plan fees. Meanwhile, the U.S. Supreme Court ruled last month that retirement savers can sue plan administrators for breaching fiduciary duty, and several cases against a slew of major employers that allege fiduciary failings are pending.

Regulations aren't expected to take effect until next year, but all the activity is pushing fees down and opening up discussions about new ways to pay for retirement plans, industry experts said.

Although it still is difficult to find systematic data on annual fees, anecdotal information suggests average plan fees that once hovered at just under 3 percent are down to 1 percent, said Brian Graff, executive director of the American Society of Pension Professionals and Actuaries in Arlington, Va.

Graff said that all the discussion about fees is opening the door to questions about how participants pay for their retirement plans. Most 401(k) plans charge investment-management fees as a percentage of the total assets a participant has in the plan. Participants with large balances, therefore, pay a larger share of overall costs.

Some companies are thinking about migrating to flat fees for all participants, particularly for the administrative costs of running the plan, Graff said.

That could be unpopular at workplaces with a lot of low-balance accounts, he said. So some are considering not charging plan expenses until an account reaches a certain level, he said.

Beyond pricing, employers also are interested in ways to ensure that employees retire with adequate nest eggs, Hewitt's Borland said.

In a 2005 survey, Hewitt found that getting high rates of participation ranked first among employer priorities for their plans, Borland said. But in the recent survey, which was conducted late in 2007, ensuring income adequacy in retirement was equally important.

Automatically enrolling employees into retirement plans and providing target-date funds managed with a specific retirement date in mind are the most popular way to try to get there among employers today, Borland said, although neither provides any guarantee.

But unlike defined-benefit pensions, 401(k) plans were designed as defined-contribution programs, meaning a company and a worker agree to a contribution level, without promising the level of retirement benefits those contributions will generate down the road.

So the notion of employers working to ensure adequate retirement benefits could be dangerous to both employers and workers, said David Wray, president of the Profit Sharing/401(k) Council of America in Chicago.

Employers that provide a review of a participant's plan assets don't have any way of knowing how long that person will continue in the same plan with the same contributions and could unwittingly set themselves up for future litigation, Wray said.

On the flip side, workers could be lulled into the erroneous assumption that if their employer automatically enrolls them in a plan, their retirement is taken care of, Wray said.

yourmoney@tribune.com

Janet Kidd Stewart writes for Tribune Media Services.

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