By Ellen Hoffman With the economy booming in recent years, employers made many positive changes in
retirement plans. But 2000 was a scary year in the market, leaving both companies and
employees struggling to navigate in the new world of sluggish tech stocks and sinking
earnings for many Old Economy stocks.
Given the number of companies that are laying off employees in droves and belt-tightening
overall, you couldn't be blamed for fearing that retirement benefits could end up on
employers' hit lists. But despite the slowing economy, experts say most employers remain
committed long-term to providing the retirement benefits they've promised. That's because
competition for talent remains strong, and employers still need to offer good retirement
benefits to remain competitive.
"Cutting the match [the matching funds companies provide for a 401(k) plan] would be an
invitation for people to leave a company," says David Wray, president of the
Profit-Sharing Council of America (PSCA), a group that represents companies with 401(k)s
and similar retirement plans. "High-quality, committed workers are treasured, and 401(k)
plans are preferred by this group. Employers will continue to support these programs."
EXECUTIVE PERKS. A recent PSCA study of 348 companies reported that 52%
of their 401(k) plans allow employees to start saving within three months of being hired,
compared with 32% in 1998. And 37% are allowed to start during their first month on the
job, compared to 24% in 1998. For an overview of features of 401(k) plans in 1999, you can
read the PSCA study at www.psca.org/43rd.html.
Other trends in 401(k) benefits, reported recently by benefits consultant Hewitt
Associates, include offering more investment options, increasing investor education, and a
greater number of plans allowing participants to shift their balances between funds on a
daily basis. You can read the Hewitt study by going to www.hewitt.com and clicking on "Reports
and Publications," and then on "Trends and Experiences in 401(k) Plans."
Even highly paid executives, whose retirement benefits go beyond the 401(k) and are
usually more generous than those offered to other employees, have seen improvements in
their plans in recent years, according to David Hauptman, vice-president of Mullin
Consulting Inc., a benefits-consulting company in New York. These "nonqualified,
deferred-compensation" plans, as they're called by the IRS, offer either a fixed annual
growth rate of around 7% to 9%, or a "multifund option" that allows the executive to defer
compensation in any of several funds that may produce better returns than the fixed rate.
QUICKER SHIFTS. His company's survey of 200 Fortune 1000 companies found
that because executives were demanding that their returns keep pace with "the market's
bull run," the number of companies offering a multifund option increased to 58% in 1999,
compared to 25% in 1996. In the last year, Hauptman says, clients starting these new plans
have also allowed participants to reallocate their investments daily or monthly in order
to keep up with the market, instead of quarterly, the prevalent system in the past.
Given current market conditions, Hauptman suggests that executives who have multifund
plans should be asking employers for protection against the down market by adding a
While the changes reported in these various surveys may be reassuring, experts also
caution that we may have seen the end to increases in 401(k) matches and pension-plan
contributions. Also, some of the changes that companies have made, such as offering more
investment information and flexibility, don't increase costs and actually could result in
DELAYED NOTICE. But if economic conditions worsen, some companies could
be forced to reduce contributions or charge higher management fees for your accounts. U.S.
Labor Dept. spokesperson Gloria Della points out that your employer must notify you of
changes to your plan, but under federal pension rules, the company has until 210 days
after the end of the plan year (which could be a fiscal year or a calendar year) to
provide the formal notice.
Depending on the type of retirement plan you have, experts suggest that you watch closely
for the following potential changes:
--Peter Smail, president of Fidelity Employer Services Co. in Boston, which manages
many 401(k) plans, says that for plans with a profit-sharing feature, "it's too early to
say what's happening on profit-sharing decisions," and that it could be another month or
two before you know whether the company's contribution for 2000 will be as high as it was
during the bull market.
-- Ken McDonnell, a research analyst for the Employee Benefits Research Institute
in Washington, D.C., says an economic slowdown could prompt companies with traditional
pension plans (which guarantee a fixed retirement payment based on a formula) to convert
to cash-balance plans, which in many cases result in lower benefits for mid-career or
-- Pat Jackson, a partner at Deloitte & Touche's employee-benefits practice in New
York City, says in the last few years, competition from dot-coms prompted many Old Economy
companies to be more generous with offers of stock options and that the collapse of so
many options in the tech world may lead more traditional companies to pull back on this
type of benefit.
According to Jackson, the main message is: Don't panic over the viability of your
retirement plan. "I would reassure employees that certainly the benefit programs are put
in place with the intention of being long-term," he says. But don't be too complacent.
Even if your retirement is a long way off, you should still care about changes -- for the
better or worse -- that happen now. Hoffman writes Your Retirement twice a
month, only for BW Online. An excerpt from her book, The Retirement Catch-Up
Guide, appeared in the July 17, 2000, issue of Business Week