401k Participants Need Investment Advice
NEW YORK, NY, May 19, 2004 -- Fear of adding to their fiduciary liability has led many 401k plan sponsors to err on the side of caution, providing only limited information to plan participants rather than risk being accused of providing investment advice. In reality, however, plan sponsors may face greater risk by not offering advice than if they do.
"In this time of financial uncertainty, complex markets, and retirees with long time horizons, it is in the best interest of plan sponsors to offer well-structured advice programs to 401k plan participants," writes senior consultant Scarlett Ungurean, CFA, author of a new white paper published by Mercer Investment Consulting, Inc.
Today, financial-advice products are available that provide much-needed advice assistance to plan participants while at the same time helping to manage plan sponsors' liability, Ms. Ungurean notes.
An estimated $1.1 trillion in employer-sponsored defined contribution (DC) plans was invested in mutual funds at the end of 2001, according to the Investment Company Institute, an industry trade group. In 401k plans, the most prevalent type of DC plan, 44% of all assets were invested in mutual funds.
"The movement to participant-directed investing has put pressure on participants to make the 'right' investment selections; on plan sponsors, to provide sufficient information to participants; on regulators, to manage and protect these investors; and on the markets, to contend with these inexperienced investors," Ms. Ungurean notes.
In her analysis, Ms. Ungurean describes the relevant rules and restrictions associated with investment advice, as they relate to plan sponsors and investment advisers. She also discusses two common business models for advice providers and their potential risks.
You can download 401k Plans: Are Employers Taking on More Risk by Providing Investment Advice to Participants? free of charge (registration required).
Mercer Investment Consulting is a leading global provider of investment consulting services, and offers customized guidance at every stage of the investment decision, risk management, and investment monitoring process. We have been dedicated to meeting the needs of clients for more than 30 years, and work with the fiduciaries of pension funds, foundations, endowments, and other investors in some 35 countries.
Throughout most of the world, Mercer Investment Consulting is an autonomous unit within Mercer Human Resource Consulting LLC, a wholly owned subsidiary of Mercer Inc., a wholly owned subsidiary of Marsh & McLennan Companies, Inc. (MMC). MMC lists its stock (ticker symbol: MMC) on the New York, Chicago, Pacific, and London stock exchanges. In the US, the investment consulting practice is operated through Mercer Investment Consulting, Inc., a wholly owned subsidiary of Mercer Human Resource Consulting, Inc., the US operating unit of Mercer Human Resource Consulting LLC.
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