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Showing posts from January, 2006

Reform Forms

This week, Congress may well turn its attention to pension reform (or it may not; there are other issues looming, not the least of which is the scramble to fill the House Majority Leader opening). Nonetheless, it seems reasonable to anticipate some kind of action on the legislative front, at least by April. Most of the focus has been on reforms targeted at defined benefit plans, and that's reasonable in view of the very serious issues regarding pension funding and the apparently precarious funding situation of the Pension Benefit Guaranty Corporation (PBGC, which insures those precariously funded programs (as well as the not-so-precariously funded ones). Additionally, there are several items in bills pending in both the House and Senate that could have a tremendous impact on defined contribution plans, including new rules regarding company stock (in the Senate bill), participant education (Senate), automatic enrollment safe harbor (House and Senate), and advice (House and Senate)

Second Thoughts

As I noted last week, a growing number of employers are taking a fresh look at their plans’ default options. Sometimes that fresh look is a function of regular, on-going due diligence (ok, maybe that’s not as frequently the reason as we might hope); sometimes the addition of a new plan feature (such as automatic enrollment) provides that impetus; no doubt, sometimes it is the result of a financial advisor’s recommendation. Regardless of the reason, in those situations where a plan has had a default option in place and then, decides to make a change, the plan sponsor is presented with a choice: What do you do with participants where the “old” default choice was applied? In fact, I recently heard from a reader who said she was seeing a variety of responses: (1) new contributions go to the new default fund, with previous defaults remaining in place, (2) only new participants, and their contributions, directed to the new default fund, with previously defaulted participant elections rema

Default “Ed”

Whether it’s a function of the growing infatuation with automatic enrollment features, a consequence of the growing popularity of lifestyle/lifecycle offerings, or the guiding influence of financial advisors, a growing number of plan sponsors appear to be taking a fresh look at their plans’ default options – the investment choices made for participants who fail to make one. This is a prerequisite for automatic enrollment designs, of course, but plans also have long provided for an interim instruction for that participant who fills out the enrollment form but, for some reason, forgets to make an investment fund selection. Traditionally, these default choices have been “conservative,” generally some flavor of stable value/money market fund, chosen primarily to serve as a temporary repository for the money until the participant gets around to filling out the proper form. However, the growing application of automatic enrollment features, as well as emerging statistical evidence regarding

IMHO: Getting What We Asked For

I was on the phone late last Thursday afternoon with the folks at IBM just before they made their big announcement about changes to their retirement programs. That timing was highly coincidental – and more than a bit ironic, since one of the things I had called to chat with them about was the impact of their last big retirement plan changes, which they unveiled almost exactly a year ago this week. This time, they announced the freezing of their current pension plans and a significant enhancement of the matching formulas for what they now term their 401(k) Plus plan – changes that would not, however, be effective until 2008 – and changes that would not apply to current retirees (see IBM Beefs Up 401(k), Backs Off DB – Come 2008 ). A lot has happened in the past year on the pension front, and yet nothing that really needed to happen. We’re still dealing with a “temporary” replacement for the 30-year Treasury bond in pension calculations (even though the Treasury plans to begin reissui

(Not) Getting It?

Call me old-fashioned, but at a time when it seems like everyone is advocating “automatic” solutions to get participants to do the right thing(s) about saving for retirement, I can’t help but wonder at the irony of participation solutions that don’t require a “participant” to participate. In the last of this series, IMHO takes a look at what seems to be the underlying logic behind the automatic alternatives – that participants don’t, or won’t, “get it.” As always, I would appreciate your reactions, comments, and suggestions. One of the more pervasive themes about retirement plan investors is that they don’t know what they’re doing, generally accompanied by some sort of subtextual survey that purports to prove the point; workers don’t participate as they should, participants don’t save enough, don’t allocate their retirement plan investments sufficiently or regularly. In sum, retirement plan participants just don’t get it. As easy as it seems sometimes to find fault with how particip