Since CFOs tend to have more investment savvy than other executives and are legally responsible for how the plans are run anyway, thinks Bianchi, they'd be prudent to have a say in how those plans are run. "Best practice is [for CFOs] to have a formal grant of authority from the board that the 401(k) is within their portfolios," he says, noting that such a structure is easy to defend in court.
Fettered Plan Participants
The tales of Enron 401(k) participants unable to access their investments have become almost as iconic as the sight of steerage passengers locked below-decks on the Titanic. "If I had company stock in my plan, I would look at ways to liberalize participants' ability to get out," advises Stephen Saxon, an attorney with the Groom Law Group in Washington, D.C. Plan sponsors, says Saxon, should raise the standards in their plans at least to the level spelled out in HR 1000, the pension reform bill reintroduced by Rep. John Boehner.
Under the bill, employees who invested their own retirement savings contributions in company stock would be free to divest that money and reinvest it in other options. Employers that made contributions in company stock would have the option of allowing workers to sell that stock three years after receiving it in their 401(k) plan or after three years of service.
Too-Rigid Investment Policies
Under ERISA, plan sponsors aren't responsible for the investment performance of participants' accounts. They are, however, liable for following the procedures they set up. That, benefits experts say, makes a well-thought-out investment policy statement a good thing to have on hand in case of a lawsuit. Empirix's Goldfinger, for instance, says that his company's plan adheres to "objective thresholds" when it considers dropping a fund.
But sometimes a downgrade in a mutual fund's rating doesn't tell the whole story, the CFO says, and sponsors can serve participants better by probing deeper into the situation. A "plan has to be specific enough that it's executable, yet leave enough room for creativity," he adds.
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