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This Little Pennywise Piggy

U.S. Tries to Help Firms Advise Workers On 401(k) Decisions

When workers find they don't know enough about investments and financial markets to be smart about investing their 401(k) retirement savings plan, they often turn for advice to the source of that plan: their company.

But companies have been worried that giving advice exposes them to potential lawsuits if their workers' investments lose money.

To try to improve the situation, the Labor Department yesterday released guidelines, in the form of an "interpretive bulletin," to help companies figure out what they can do to help workers make "informed investment decisions" without actually giving them "investment advice."

Benefits experts called the bulletin a welcome development, though they noted that many companies already had taken some of the steps recommended.

"What [the bulletin] is talking about is a greater level of education. Everybody learns in different ways, and this gives employers greater flexibility to speak to their employees in the most appropriate way possible," said Wayne Bogosian of the Boston office of Watson Wyatt Worldwide, a large benefits consulting firm.

Retirement savings through 401(k) and similar plans have grown dramatically since the mid-'80s, with an estimated 22 million Americans now participating. In a 401(k) plan, the worker or employer makes regular contributions that are credited to an account in the worker's name.

The worker invests the money in the account in one or more of the alternatives allowed by the plan, which often are mutual funds or company stock. At retirement, the worker gets the entire value of the account.

The plans appeal to employers because there is less regulation than with a traditional pension, and in contrast to traditional pensions, the investment risk falls entirely on the worker.

However, companies already have been concerned that a lack of participation as well as poor investment choices could leave employees with inadequate resources in retirement.

A survey of larger employers by Hewitt Associates, a benefits consulting firm based in Lincolnshire, Ill., found that 76 percent already make some effort to educate employees about their retirement plans.

"We try to give the [employees] as much information as we can without going to the point of giving them investment advice," said Paul Gunby, director of compensation, benefits and payroll for Giant Food Inc.

Gunby said Giant relies on Cigna Corp., a big insurance company that operates the plan's investments, to provide financial information.

"We pretty much let them do the talking," Gunby said. "That way we feel comfortable that it's not Giant giving the information."

"We want to be able to give them as much information as we can but not cross that line" of giving investment advice, "even though a lot of times people want us to," he said.

A spokeswoman at Mobil Corp. said she and her co-workers have access to computer programs that allow them to work out alternatives within the plan. "We can do that already," she said.

Labor Department officials said they hope the bulletin will encourage employers who are already educating workers to continue and get those who are not off the sidelines.

Because the bulletin is just the department's interpretation of a rule, it remains possible that an unhappy worker might sue and win. But officials said that they would expect courts to give deference to their interpretation.

In the bulletin, the department concludes that employers may safely provide:

More information about the company plan and about the investment objectives and philosophies of the investment alternatives within it. In the past companies have been required to provide a description of their plan but not to explain potential implications of choosing one investment alternative over another.

General financial and investment information that is not directly related to the plan's investment offerings. "This is Investment 101, if you will. . . . It's something everyone can use," said Allen T. Steinberg, a consultant with Hewitt.

Information about how to divide investments among different choices -- such as between stocks and bonds -- a process known as asset allocation. This information is designed to help people weigh the risks and rewards of various alternatives.

Interactive materials such as computer programs and worksheets to help employees calculate the effects of different levels of contribution and rates of return.

The Labor Department's clarification of rules governing 401(k) plans is in part a reaction to the enormous growth in the plans in the past 10 years, as well as projected growth into the next century.

What Is A 401(k)?
401(k) plans allow employees to have part of their paycheck contributed to a tax-deferred investment plan. Employers often partially match employee contributions, which remain untaxed until withdrawn in retirement.

Who participates?
Percent of workers who participate, by selected categories

All workers	23.8%
Sex
Male	26.4
Female	20.8
Income Level
Less than $5,000	1.6
More than $50,000	56.3
Age Group
16-20	1.2
41-50	30.5
65 and older	11.6
How Assets Are Invested
Stock	23%
Stable value investments	22%
Diversified equities	21%
Balanced accounts	14%
Bonds	8%
Other	6%
Money market accounts	6%

Sources: Access Research, Investment Company Institute, Employee Benefit Research Institute