The 2005-2006 Annual 401(k) Benchmarking Survey (PDF) jointly sponsored by the Human Capital practice of Deloitte Consulting LLP, the International Foundation, and the International Society of Certified Employee Benefit Specialists, offers an interesting snapshot of the struggle employers are facing with financial benefit programs post-Enron. On the one hand, we see increasing participation rates—24% of the responding firms reported participation rates in excess of 90% of eligible employees. There have also been increases in automatic enrollment and an increase in investment options. A new breed of investment options called time-based lifestyle funds automatically shift a participant’s asset allocation based on target retirement dates.
On the other hand, fewer employers are matching contributions with employee stock, and more are now allowing employees to reallocate those assets immediately should they so choose. Most telling is the pessimism that employers expressed about the status of their employees’ retirement planning. Only 13% of respondents agreed with the statement that “most employees are/will be financially prepared for retirement.”
It would seem that employers are having difficulty establishing the right balance between encouraging their employees in the right direction to ensure their financial security and protecting the corporation from liability, which could result from being viewed as a financial advisor. Most of us know little about investing and rely heavily on the advice of professionals. Of the companies participating in the survey, 40% offer financial counseling and advice to help employees with financial decisions.
Helping employees understand the options
Employers are focusing many of their efforts on developing communication programs to help employees understand their retirement plan options. There are many resources available to both employers and employees. Some include:

  • Group meetings with 401(k) providers or similar vendors
  • Internet access to financial informational sites
  • Information from benefits or human resources departments
  • Books, tapes, worksheets, and other generic information
  • Financial counseling through an EAP
  • Periodic in-house seminars with non-401(k) financial planners

Vetting the vendors
Employers must take great care to select qualified vendors that will help employees with these critical decisions. Some important steps to take include:
Verify licenses. In most jurisdictions, investment advisers must be licensed. Check with your state’s appropriate regulatory body to ensure that your vendor’s license is up to date.
Get references. Contact the prospective vendor’s current clients to verify satisfaction. Understand the compensation system. Make sure you understand exactly how the vendor is compensated. Those vendors that receive commissions for sales of certain investments might not be completely unbiased.
Review communication plans. Ask for samples of employee communication pieces and a plan for employee education to ensure adequate understanding of the plan.
Get recommendations from trusted advisors. Be sure to check with your EAP to learn what individual and group financial services might be available.
In the end, the responsibility for any financial decisions rests with the employee. All an employer can do is help the employee to understand alternatives and encourage participation in available benefit plans.

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