Putting A Shine On The Golden Years

The New Year is going to be a more prosperous one for employees of Atlanta's Cox Enterprises Inc. The media conglomerate recently took heed of a survey of its employees and decided a change was in order for the company's tax-deferred, employer-assisted 401(k) plan. So come January, Cox will shorten the waiting period to join its plan, increase the amount it matches employee contributions, and up the portion of salary workers can sock away before Uncle Sam lays claim to it. "For our people to have a comfortable retirement and to maintain a standard of living, they needed to defer more money," says Susan Mackenzie, savings-plan director at Cox.

In a way, Cox is just bowing to the inevitable. The Labor Dept. recently issued new rules requiring companies that offer 401(k)s to give their employees more choices and more information about fund performance and administrative fees.

FULL SPREAD. Whether the prodding is coming from the government or employees, companies are starting to respond. A recent Bankers Trust survey of 171 companies--with 5 million employees and $135 billion in 401(k) assets--found that employers across the nation were offering a broader range of investment choices, such as aggressive-growth and international equity funds; affording employees more liberal exchanges among different investments; increasing the amount of the company's match; and installing toll-free numbers that workers can call to gain information about their accounts.

Another key change: While giving employees greater flexibility, an increasing number of companies are off-loading the management of the plans and putting more of the cost on employees themselves.

The fast-growing popularity of the 401(k) is driving all the changes. Aging baby boomers, worried about the long-term health of Social Security and the stability of corporate pensions, are pouring money into their accounts. By the end of the decade, total 401(k) assets should reach $1 trillion, with many individual account balances well into six figures. The average account balance has nearly tripled to $30,000 in the past five years, according to a Bankers Trust survey. "It's sometimes surprising when we see average workers making $20,000 or $30,000 and find they have over $100,000 in the plan," says Linda McEvoy, a savings investment planner at San Antonio insurer USAA.

The plans could grow even more popular as the choices increase, as Texaco Inc. found out. In 1987, the giant oil company placed its plan with the Vanguard mutual-fund family and added a sweetener: It would match employee contributions with Texaco stock on a 2-for-1 basis. Now, 94% of eligible employees have a 401(k). "When we had the old plan, participation was somewhere in the 80s," says Texaco Treasurer Robert W. Ulrich.

It's not just big companies that are polishing their plans. J. Baker, a specialty retailer in Readville, Mass., launched a 401(k) in January with just one investment option, a money-market account. Competitive pressure drove the decision. "A lot of our hires came from companies that had 401(k) plans, and they wanted to continue," says Benefits Manager Pamela P. Donovan. In September, J. Baker added a balanced fund and a stock-index fund.

`OBSOLETE.' Some smaller and newer companies never had a traditional pension plan in the first place. At Dell Computer Corp. in Austin, Tex., Richard Hodges, the benefits manager, calls defined-benefits plans, where employees receive a set retirement amount based on company contributions, "expensive and rapidly becoming obsolete." Dell matches workers' contributions with company stock--a growing trend among all employers. Workers then "have a stake in the company, which sensitizes them toward company goals," says Hodges. That's the company view. A professional portfolio manager, though, would caution against investing too much of the employee nest egg in a single stock.

It's all a far cry from 1978, when Congress changed the Internal Revenue Service code to spur new private-sector retirement initiatives. The success of the 401(k) plan proves that at least this time, Washington's tinkering is proving quite worthwhile.

Before it's here, it's on the Bloomberg Terminal.