iPensions & Investments’-i Seventh Annual West Coast Defined Contribution Conference

Event: Pensions & Investments’ Seventh Annual West Coast Defined Contribution Conference

Date: October 8-10, 2006, the Fairmont Hotel, San Francisco

What: Pensions & Investments’ Defined Contribution Conferences allow investment providers, employers and consultants to get together and discuss the big issues and trends affecting the industry. With the recent pension reform—and more than 400 attendees, the biggest turnout ever—there was a lot for everyone to learn and discuss.

Conference info: For more information, go to www.pionline.com.

Day 2—Tuesday, October 10

Theme of the conference: Many speakers throughout the show talked about how the conversation around getting employees prepared for retirement has changed over the years. In a panel discussion about the use of managed accounts in 401(k) plans, Christopher Jones, chief investment officer at Financial Engines, says that at past conferences, speakers focused more on how to get employees engaged.

“Today the conversation is shifting away from 401(k) plan sponsors requiring individual responsibility of participants,” he says. While employers still give 401(k) participants the opportunity to be responsible for their retirement savings, they also are more focused on designing 401(k) plans that will take care of it for them.

In a separate panel discussion, Dena Regan, global benefits manager at Santa Rosa, California-based JDSU, discussed the difficult position many employers are in when trying to communicate to employees about the importance of saving for retirement.

“Yes, we know that we have 25-year-olds who are 100 percent invested in stable value,” she says, noting that with such conservative investments it’s unlikely that these employees will have enough saved for retirement. “But who am I to say to someone, ‘Yes, I understand you are living paycheck to paycheck, but you really need to save for retirement.’ “

Dearth of data: One of the key challenges facing managed account providers is getting data from the participants, admitted Kevin Crain, director of integrated product management at Merrill Lynch Retirement Group, speaking on a panel about the role of managed accounts in 401(k) plans. When employees are automatically enrolled into a managed account, this can pose a greater challenge for the providers, according to the panelists.

Merrill Lynch addresses the problem by using the Web and paper-based statements to show investors their personalized portfolios, Crain says. “That personalized statement usually draws people in,” he says.

Similarly, Financial Engines collects information from the 401(k) plan’s record keeper and uses that to customize a portfolio. The company will e-mail the participant with information about the portfolio. When employees see the information that Financial Engines has about them, they will usually speak up about their spouse’s assets or other assets they have outside the plan, Jones says.

Risk, not merely returns: Employers shouldn’t just look at investment returns when they are choosing an investment provider for their 401(k) plans. That was the piece of advice that Ed Haldeman, president and CEO of Putnam Investments, told attendees in his keynote address Tuesday morning. “Plan sponsors need to focus on risk efficiency and not just on high returns,” he says. He noted that finding investment options with strong returns is just one challenge that plan sponsors face.

But finding investment options with a suitable amount of risk also should be a goal for companies, Haldeman says. Just like defined-benefit plan sponsors maintain a strong focus on risk, defined-contribution plan sponsors must think the same way, he says.

“From an investment management perspective, the switch from defined benefit to defined contribution simply means a change in plan structure,” he says.

Bad analogy: In what may not have been the best analogy to make—given that almost everyone in the room was about to board a plane to return home—Kelli Hueler, president and founder of Hueler Cos., compared individuals saving for retirement to planes flying and taking off.

While most people are concerned that there will be a fatal accident during departure, that’s rare because all the engines are up and running, leaving little room for error. In fact, it’s the landing that tends to be the problem, she says, noting that 46 percent of fatal accidents on planes occur at landing. Similarly, it’s usually when employees retire from their companies that they are left on their own, and many find that they don’t know how to manage their savings so that they have enough to live on for retirement.

—Jessica Marquez

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Day 1—Monday, October 9

Pension reform ponderings: Kicking off the conference, Jamey Delaplane, a partner at Davis & Harman, talked about how the recent Pension Protection Act, while a step in the right direction, has resulted in more questions than answers for employers.

For employers with defined-benefit plans, the reform only created more volatility and unpredictability, he said. As a result, more companies with defined-benefit plans are looking for ways to resolve their liability issues, Delaplane says.

Even employers with 401(k) plans are left having to interpret much of the legislation, Delaplane says. For example, the reform gives the OK for employers to automatically enroll their 401(k) participants into investment options that the Department of Labor says are acceptable. But the guidelines are still just a proposal, Delaplane noted. As a result, many plan sponsors are wondering if they have to wait for the guidelines to be finalized.

The Pension Protection Act also mandates that employers can maintain a 90-day period by which employees who have been automatically enrolled into the company’s 401(k) plan can ask for their money back.

“HR folks are calling me up and asking, ‘What do I do if an employee wants to withdraw from the plan on the 91st day?’ ” Delaplane says.

As a result, companies are examining other options outside of the 90-day window.

What to look out for: Delaplane also shared his thoughts on future pieces of legislation he expects to become hot issues over the next several months. These include:

• An automatic IRA proposal—which would require employers that do not have a 401(k) or defined-benefit plan to automatically enroll employees into an IRA, in which only the participants would make contributions. “This would put huge responsibilities on employers” regarding communications and notifications to employees, Delaplane says.
  
  
• Mandating auto enrollment and automatic increases of 401(k) plan contributions.
  
  
• The establishment of default distributions so that when employees retire, a portion of their income would automatically default into some type of annuity offering. As the baby boomers retire, Delaplane says that the issue of retirement income will become more prevalent in debates on Capitol Hill and, as a result, “the big battle we have yet to have is do we require default distributions” after retirement.

Moral dilemmas: Speaking on a panel about how to incorporate new practices to meet employees’ retirement needs, plan sponsors debated on how much hand holding to give 401(k) participants. Tony Cost, vice president of HR at Silgan Containers, wants a “cradle-to-the-grave approach” to offering financial advice to employees. The company is discussing tapping into a financial advisory network to give face-to-face advice to its 6,000 employees.

Fellow panelist Cindy Conway, group director of compensation and benefits at Cadence Design Systems, said her company opts for online advice and education, with some face-to-face seminars on specific topics. For example, the company recently held a seminar for parents of children with special needs.

At the other end of the spectrum, Mel Fleeman, manager of retirement plans at Tetra Tech, said that his employees don’t like it when the company tries to hold their hands. “We find that the usage of advice is so low that it’s not worth the expense,” he says.

And with 300 locations across the country and many employees who are construction workers, offering face-to-face advice doesn’t seem logical, Fleeman says.

But when asked later about the costs of increasing participation in the 401(k) plan, Fleeman shared his other concerns about raising 401(k) participation: added costs.

Tetra Tech is not alone with this moral dilemma, Martha Tejera of retirement consulting firm Tejera & Associates told Workforce Management, following the panel discussion. Many employers realize the need to help their employees save enough for retirement, but are worried about the costs of maintaining large 401(k) plans, she says.

– Jessica Marquez