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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 401(k) 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 401(k)
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.
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"The vast majority of employers
have a plan because they want to retain and attract employees."
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| — Christopher
Bowman, vice president, retirement and investor's services with the Principal Financial
Group. |
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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/401(k) 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
underperforming 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.
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"A lot of times a company doesn't
make changes because they haven't heard enough from the employees."
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| — Trisha
Brambley, president of Resources for Retirement Plans, Inc. |
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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 401(k) 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 401(k) plan and
president of the 401(k) 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." |
