Press Article

Survey: Demand for 401(k) Advice Rising
By Marc Hogan
From Ignites

Nearly half of retirement plan sponsors say they offer their employees some kind of investment advice. And those that don’t would reconsider if they were exempt from fiduciary liabilities associated with offering advice.

That’s according to a new survey sponsored by the Society for Human Resources Management, WorldatWork and the Employee Benefit Research Institute. The survey, which polled 801 compensation and benefit specialists and human resource professionals, found that 49% of plan sponsors say their organizations offer some kind of advice to their 401(k) participants. It also found that the employers who do not offer a retirement advice service see a need for it. Some 83% responded that not offering advice has had an impact on their employees’ ability to retire comfortably.

That comes as good news for retirement investment advice providers like Financial Engines, Guided Choice, Ibbotson and Morningstar. All of those firms are vying to sign up as many plan sponsors and align with plan providers.

Those firms got even more good news in the form of a recent Mercer Investment Consulting white paper. It states that plan sponsors are actually at a greater risk of fiduciary liability if they do not offer advice. To be sure, Mercer has a vested interest in its white paper. The firm provides advice “on the design, implementation, communication, and administration of new plans,” according to its website.

Those firms got even more good news in the form of a recent Mercer Investment Consulting white paper. It states that plan sponsors are actually at a greater risk of fiduciary liability if they do not offer advice. To be sure, Mercer has a vested interest in its white paper. The firm provides advice “on the design, implementation, communication, and administration of new plans,” according to its website.

That notwithstanding, employee benefits attorney Fred Reish, partner and managing director at Reish Luftman Reicher & Cohen, agrees with Mercer’s position, and notes that hiring an investment advisor shows a plan sponsor is taking its fiduciary duty seriously.

“If you look at surveys and studies, there’s a lot of data out there that show that the average employee does not know how to invest,” he says. “The very worst thing an employer can do is ignore all that.”

Still, most plan sponsors believe that offering retirement advice services to their employees opens them to fiduciary liability, the survey shows. Of the 51% of plan sponsors that do not offer advice, a majority stated that they would reconsider if laws eliminated their fiduciary liability.

The survey also includes figures that may interest plan providers and administrators as well as firms giving advice. Of note to plan providers: More than half of the 49% of sponsors who give their employees access to advice do so because it is bundled with their retirement service, according to the new survey. The number suggests that providers who also offer advice have an advantage if they bundle the advice program with their other services, says Doug Grieser, a researcher for WorldatWork.

However, only 20% of plan sponsors think advice impacted contribution. That means providing employees advice won’t necessarily make them put more money in their 401(k) plans.

“It might be that you’ve got people who know it’s good to be in a 401(k) plan, and they already know how much they want to contribute, but they don’t know how to do it,” Grieser says.

The overall number of sponsors offering advice took some in the industry by surprise.

“I would even have thought that the number [of employers] that offer advice currently would have been lower,” says Tim McCabe, vice president of marketing for advice provider 401k Toolbox, noting that the industry is “in the toddler stage, where I think there’s development that can be done.”

The reason so many plan sponsors say they offer advice may be because they Don’t adhere to the industry definition of advice, according to John Rekenthaler, president of the Morningstar investment advisor unit. Technically, advice is when specific stock or fund recommendations are offered to participants or sponsors. If it does not fit that definition, most communications are considered by the industry to be education. It is likely that a good number of the survey’s respondents consider education the same thing as advice.

“There’s actually even more opportunity,” Rekenthaler observes. “I would say that only 10% really have advice, strictly speaking.”

Further, Rekenthaler says sponsors’ fiduciary concerns about providing advice services may be justified.

Regardless of Mercer’s white paper, there is still no definitive case law on retirement advice, he notes, though the Labor Department has made noises in support of advice providers.

As a result, any legal theories remain just that - theories.

This article is from Ignites at www.ignites.com.
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