|
There's an old
saying that goes "you can't fight city hall."
But, occasionally,
persistent folks do and win. Leon Winer, a professor at Pace
University, fought his proverbial city hall (the University's
administration) and managed to get the investments in his
retirement plan changed.
Employers work pretty hard to offer
attractive plans. For the most part, apparently, they succeed. A
Spectrem Group survey of 401k participants in 2000 showed that
85 percent thought their plan was as good as or better than other
employers' plans. When asked to rate their investments,
participants gave an average score of 6.6 on a 10-point scale,
with one being the worst and 10 being the best.
"The vast majority of
employers have a plan because they want to retain and attract
employees," said Christopher Bowman, vice president of
retirement and investor's services with the Principal Financial
Group.
While employers are usually happy
to listen to requests to change the plan, actually changing
the plan can be an involved and lengthy process. For this reason,
employers may be reluctant to change their plans outside of their
normal review cycle. To get your plan changed, you will need to
make a good case and/or enlist the support of many of your
co-workers, experts say.
Before we talk about getting your
plan changed, let's look at what your employer is likely doing for
you.
Employer
Responsibilities
With many workers upset about
recent losses in their 401k plans, employers are likely
increasingly aware of their responsibility to properly manage the
plan. Federal law requires employers to design and operate the
plan in the best interests of their employees. While employers
can't guarantee results, they have to offer adequate and
appropriate investments.
 |
"The vast
majority of employers have a plan because they
want to retain and attract employees."
|
| —
Christopher Bowman, vice president, retirement and
investor's services with the Principal Financial
Group. |
|
One way to do this is by creating
an investment policy statement that lists criteria used to pick
and retain the plan's funds. In 1999, 54 percent of plans reported
having this statement, the Profit Sharing/401k Council found in
its annual plan review.
Additionally, employers need to
regularly review the investments to ensure that the fund managers
are sticking to their advertised investment style, beating key
benchmarks, and performing the same as or better than similar
funds. Making sure a particular fund posted a profit or loss is
not the main goal.
Employers are likely to review the
investments with the goal of filling in holes. Rather than
offering the latest hot sector fund, the focus may become finding
funds to help workers build a well-rounded portfolio.
Case Study
Winer, the 72-year-old college
professor, fought a year-long battle 10 years ago that ended in
victory.
His initial complaint was that his
plan's stock fund was under performing the S&P 500 Index, a
blue-chip benchmark. He wanted to invest his money in index funds
so he could at least match the market's performance. "It was
my retirement money," he said.
When he told the University's human
resources department his concerns, the reply was that the
University was a big place and this kind of change would require
more than his single voice.
So, he set out to create a chorus.
First, he did his homework — researching the performance of the
index fund compared with the stock fund in the plan. He found that
the stock fund in his plan was being beaten by its benchmark, the
S&P 500 Index. Comparing performance over the previous five
years, he found that a $50,000 investment in the Index would have
grown to $103,000, while a similar investment in the plan would
only have grown to $98,200.
Winer wrote up his findings in a
report to the faculty. Further, he organized faculty meetings
where he asked the attendees to sign a petition asking for the
change. He buttonholed the University provost and presented his
case. After gathering the provost's and faculty support, Winer
finally got an audience before the University's benefits advisory
committee. This was the group with the power to change the plan.
For all his work, Winer was invited
to join the committee to research new funds. And, more than a year
after he began his campaign, the University offered new funds in
the plan.
Change Your Plan
Your plan isn't set in stone. Many
employers regularly make changes, whether required by law or to
meet employee needs.
A common reason for employee
dissatisfaction is that plans become out of date. This happens
because inertia sets in, said Trisha Brambley, president of
Resources for Retirement Plans, Inc. "A lot of times a
company doesn't make changes because they haven't heard enough
from the employees," she said.
|
"A lot of
times a company doesn't make changes because they
haven't heard enough from the employees."
|
| —
Trisha Brambley, president of Resources for
Retirement Plans, Inc. |
|
Employers do seem to want to know
what workers think. Some conduct surveys or hold focus groups to
get the work force's pulse. A growing number have
employee-benefits advisory committees. Patricia Rhubottom, vice
president of human resources for Acquisition Management Services,
Inc., says when workers make the effort to speak with her about
the 401k plan, "I take notice."
If you want to change your plan,
the human resources department should be your first stop.
"It's HR's duty to listen (to workers) and represent them to
management," Brambley said.
Your chances of success are greater
the more specific you are with your complaints, said Ted Benna,
the creator of the first 401k plan and president of the 401k
Association. "Don't just say 'our funds stink,'" he
said.
So, do some homework. If you're
unhappy with the fund selections, look at your employer's
investment policy. That may explain why the offerings don't seem
complete. While federal law doesn't require employers to disclose
the investment policy, it's worth asking for it.
If you're unhappy with the
performance of one or more funds, find out when your employer last
conducted an investment policy review and ask for the minutes from
those meetings. Perhaps the review committee is also taking
a closer look at those funds. Look at fund performance over
several years and compare it to performance of similar funds and
benchmarks.
Doing your homework will give you
credibility for the next step: building support for change.
Find out if co-workers feel the
same way you do. Employees that complain as a group often get a
better hearing than those going it alone. Gathering signatures on
a petition is often a good idea.
Ultimately, you may need to talk to
the chief financial officer, the corporate treasurer, the chief
executive officer, or an investment committee.
Another tactic to bolster your
arguments is to compare your plan with those offered by other
similar-sized employers in your area or by your firm's
competitors. "These are convincing points," Brambley
said.
Be willing to step up if asked to
help. And, don't expect immediate results. "Employees can't
expect an organization to turn on a dime," said Christopher
Cumming, vice president of marketing at Diversified Investment
Advisors, an investment advisory firm. "At a large firm, it
takes effort." 
|
