Corporate education programs about employee retirement saving should get a boost from the shift to automatic plans, as the PPA intended. "When enrollment isn't automatic, there's a problem getting employees to change their behavior," he says. "Now, you'll be starting with a room full of people who are already on the right course. The education becomes supplemental, and reaffirms what they're doing. You can say, 'If you want to be more aggressive, here's how. If you want to be more conservative, here's how.'"
Consenting to Advice
Memphis-based FedEx recently announced automatic enrollment for its 120,000 401(k) participants as part of a PPA-inspired buildup of its plan. "This is something we've wanted to do for a long time," says Alan B. Graf Jr., executive vice president and CFO, who had been perplexed by the low 60 percent sign-up rate of eligible employees. "You would think a 50 percent return would be an obvious choice for employees," he says, noting the current 50 percent match terms for 401(k) contributions up to $500 currently. "We just weren't able to go far enough to educate people and help them make their savings build. Now at least we'll be starting them the other way — toward saving."
On January 1, 2008, FedEx also will sweeten the terms of its match to 100 percent of the first 1 percent of eligible earnings and 50 percent on the next 5 percent. "I'm one of those people who believes you can't save too much for retirement, given how health-care and other costs are rising so sharply," Graf says. Noting that 14,000 members of the current plan have all their retirement money in a money-market account, he is also happy that FedEx will have a diversified default-investment option. He acknowledges that increasing employees' market risk — especially after February's Wall Street shock — may take some explaining. "People say they just don't understand the market," he says, "but we think we can show them there's enough diversity in the portfolio to protect them from much of that risk."
FedEx, which has Vanguard as its 401(k) provider, is talking with various vendors about offering computer-modeled investment advice to employees, who would then be able to use a telephone hotline for more-specific guidance. It is taking its time, however, as the market for such advice programs develops.
Despite the PPA's encouragement of more advice, Fidelity and other large vendors have seemed reluctant to enter the third-party advice field. "The vendors aren't exactly doing back flips," says John Nixon, a benefits partner with the Philadelphia law firm WolfBlock. "There are tons of vendors that could provide advice, but I don't think they feel comfortable yet with the initial guidance from the Department of Labor."
David Wray says a healthy advice system already serves plan sponsors, using computer models and telephone hotlines and sometimes drawing on more-expensive face-to-face consultations. Nixon, however, believes the "advice market" could take off if a large vendor jumped in with a program.
Cost may not be as big a factor for Fidelity as the need to adjust compensation structures for its advisers if 401(k)-related advice programs were to become popular. "Right now, we are evaluating the situation," Fidelity's Cornell says.
But even as FedEx reviews advice options, its main thrust now is to communicate with employees about its reshaping of the plan in general.
"We are well aware that when you talk to people about changing their retirement savings it makes everybody nervous," says CFO Graf. "Our communication is going to be very intensive. I told our employees that we're going to answer every last question about it."
Roy Harris is a senior editor at CFO.
Reader Comments» Post a comment