Saturday, September 09, 2000

Your 401(k) not OK? Speak up

Companies may change if enough complain

By Amy Higgins
The Cincinnati Enquirer

        If you've got a complaint about your company's 401(k) — it's underperforming, you want more investment options or you would like to have a loan option — make your voice heard.

        Better yet, make sure there are lots of voices echoing yours.

        You can make positive changes in your 401(k), but it could take a groundswell of dissatisfaction, as it did at Al Neyer Inc. The Fairfax development company recently expanded its menu of mutual fund options in the retirement plan from five to nine, adding mostly more aggressive funds.

        “People were really crying for that,” said John E. Neyer, director of marketing. “It took a groundswell.”

        Complaining loudly and to the right person is about the only way to get changes made in your employer's plan, said Dick O'Donnell, an editor at RIA, a publisher of tax and finance information.

        “Unfortunately, if you're dissatisfied with your 401(k) plan — because maybe you wanted Fidelity Magellan when you've got Bob and Ted's MidCap instead — you're probably out of luck,” he said.

        Don't go crying to the Department of Labor or any other authority: No federal laws require companies to have any kind of retirement or deferred compensation plans. If a firm does have a plan, the law requires only that there be a method for deferment and a trustee for the money.

        Ability to borrow, smorgasbord of funds, and healthy employer match — none of that is required to be in a 401(k) plan at all.

        “These are sweeteners,” Mr. O'Donnell said.

        And that's why many employees might be hesitant to complain about the plan to begin with, said Steff Chalk, president of the Chalk 401(k) Advisory Board, a local plan consultant. Employees complaining about freebies might be perceived as whiners and told they're lucky to have a plan at all.

        Plan participants also could be told that the company knows better what's good for them — that keeping the number of options low or preventing 401(k) loans helps employees help themselves.

        (Borrowing from a 401(k) is generally considered poor financial management because you'll pay yourself a lower interest than the money would earn staying in the plan; plus, if you default on the loan, you'd owe taxes and penalties totaling almost half of the loan amount. Too many mutual fund options, meanwhile, could cause participants more confusion and present them with too much risk.)

        That was the dilemma facing Neyer: how to stay paternalistically protective of their employees, while answering their call to put more aggressive funds in the plan.

        Jenny Neyer Berg, vice president of human resources and administration, said the original five funds were mostly income and value-oriented funds. Largely because of the tastes of the recent stock market, value and income funds have lagged while growth and equity funds have been the most popular and highest returning.

        “They were not high growth by any means, but they weren't not high risk either,” Mrs. Berg said of Neyer's fund selection.

        In an era where planning gurus preach diversification, the 401(k)'s options were not very diverse — but they were relatively safe.

        But then Mrs. Berg said she began getting negative feedback on the plan — mostly on employee satisfaction surveys and in the form of snide remarks in passing. Once employees started taking loans against their 401(k)s in order to put the money in higher returning investments, she knew something had to be done.

        “If you have that (riskier) option, it's your choice,” she said. “But if you don't have the option, are not being offered the options, I don't think your fiduciary responsibility is being taken care of.”

        New funds on Neyer's menu include a Standard & Poor's 500 Index fund, an aggressive growth fund and a small capitalization fund. The choices still include the safer options of a money market fund, a short-term income fund and a balanced fund.

        Other employee-friendly changes include letting new hires join the plan in less time and letting employees receiving profit-sharing funds invest them in the same fund selections.

        Mrs. Berg said Neyer formed a benefit committee, hired a consultant and carefully studied the issue for months in order to strike the balance between not enough and too much for its 75 employees.

        “We're a fairly paternalistic organization — family businesses tend to be that way,” she said. “Changing to this I think will enhance our recruitment efforts. It will certainly enhance our (plan) participation efforts.”

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