By Ellen Hoffman As the 401(k) and similar retirement-savings vehicles have largely replaced traditional pensions, the burden of making profitable decisions on investments has increasingly fallen on the employee, not the employer.
Many employers spend large amounts to offer their employees financial education and retirement planning, ranging from brochures and online information to one-on-one conversations with financial planners. And to get around relatively low participation and contribution rates, employers are increasingly putting enrollment and other aspects of their retirement plans on "automatic pilot" (see BW Online, 10/8/05, "Putting Your 401(k) on Autopilot").
Yet I receive a continuous stream of research documenting the failure of many Americans to save enough for retirement or pay attention to their retirement accounts. Reasons include lack of interest, the amount of time needed, and a lack of confidence in the ability to make sound decisions.
TWO EXAMPLES. There's not much to be done about someone who's not interested or won't make the time. But for those who are concerned enough, let me suggest a workplace investment clubs.
Investment clubs aren't a new idea. They have been around at least since the 1950s, when the National Association for Investors Corporation (NAIC) started developing tools for any group interested in learning more about how make investment decisions. NAIC counts nearly 18,000 clubs in its network, but when asked about workplace investment clubs, it said it doesn't keep separate statistics on what types of clubs are in its network and could only come up with contacts for two.
Here's how those two work-based groups operate. The Summit Investment Club is made up of about 25 -- around 10% of the total -- employees of Precision Computer Systems, a banking-software company based in Sioux Falls, S.D. Founding member Mary Enright, a quality-assurance representative, says the club has been in existence since 1993. It's affiliated with NAIC and uses the organization's materials for analyzing stocks and mutual funds.
COMPANY HELP. Each member contributes a minimum of $25 and a maximum of $100 per month to invest in a club portfolio. Before the members vote -- a majority decision is needed before a stock can be bought or sold -- at least one member analyzes the equity's performance and prospects, and the group discusses them.
Enright says that at a recent meeting, club members discussed issues of immediate interest, including whether to buy their employer's stock through the company purchase plan, and "if our 401(k) mutual-fund options are better now than in past years." Although the group discusses the options in their company plan, they make these purchases individually.
So far, the modus operandi could apply to any investment club. But here's what's different: The company offers its blessing to the Summit club in the form of meeting space and a payroll deduction for members' monthly contributions. The contributions -- which are separate from 401(k) contributions -- go into a brokerage account, where they're available when the club is ready to purchase a stock.
AN EXTRA POT. PCS President Mark Blankespoor says he sees the club as a perk for his employees, something that encourages them to "educate themselves, to start thinking about their own personal finances and retirement."
Member Dale Erickson, a research coordinator at PCS, says advantages to having a club based in the workplace include the ease of organizing and attracting members -- which they do in informal conversations and through the company newsletter -- and communicating efficiently through the office intranet. He also notes that the club amounts to a form of enforced saving -- an extra pot of money that will be available to tap when he retires.
The other club I talked to is made up of current and retired field examiners from the Federal Deposit Insurance Corp. in Salt Lake City. The 20 members travel a lot, so they share their NAIC stock studies and debate their purchases by e-mail. Retiree Ross Meredith started the club about 10 years ago and is convinced that learning about the market "is extremely important if you're going to have a retirement account like a 401(k)," as well as for making decisions on how to invest retirement savings in other investment accounts.
EMPLOYER CONCERNS. If workplace investment clubs make so much sense, why don't we hear about more of them? There may be more than these two in NAIC's network, but it doesn't keep statistics on whether a club is based in a workplace. Some of the largest providers of retirement plan services -- including The Principal and Fidelity Investments -- say the employers they work with have never expressed interest in offering a club as one of their financial-education options.
Monica Kirgan, vice-president at The Principal, a company whose clients include 45,000 retirement plans with 3.5 million participants, says research shows that 80% of employees in their plans consider themselves "novice investors" and 45% "would prefer to have someone manage their retirement plan investments for them."
Other experts I interviewed gave different reasons for not sponsoring clubs, including concern that without a professional facilitator, such as a broker or financial planner, club members could make too many investment mistakes; that employers may fear legal liability for investment losses; and that employees may feel intimidated about discussing money issues in a forum where their supervisors may "take over the group."
USEFUL FOCUS. My response to all of these negatives is: Why not try it? Both the Summit and FDIC clubs offer models that have worked for a decade or more. I was a member of an investment club for about five years, and I found the discipline of regular meetings and required analysis to be useful for identifying stocks for my retirement account, as well as for the group's portfolio, and for keeping me focused on what's happening to those investments.
If you and some co-workers are interested, ask your employer for a meeting space and circulate a notice inviting others to join. Payroll deduction isn't even necessary. You can set up a brokerage account online or with a local office, collect the checks at each meeting, and mail them in.
The issue of an expert facilitator can be resolved by inviting the broker who's handling the club's account or a member's broker or financial planner to attend the meetings. Comprehensive educational and record-keeping materials -- including software for managing the club, paying its taxes, etc. -- are available through NAIC at reasonable cost.
CULTIVATING INTEREST. Sure, it's possible to argue that anyone who wants to join an investment club can do so outside of work. But because of the connection between investing and retirement savings decisions and the potential for easy and frequent communication among members accustomed to collaborating, such a club has a strong chance of succeeding.
Workplace investment clubs clearly aren't a panacea for anyone ignoring his or her retirement account. They'll only appeal to people motivated to make the most of their investments or who already have an interest. But that could be quite a few of your coworkers.
In addition to writing Your Retirement for BusinessWeek Online, Hoffman is the author of The Retirement Catch-Up Guide and Bankroll Your Future Retirement with Help from Uncle Sam. You can contact her through her Web site, retirementcatchup.com