PRINT
EMAIL
COMMENT
DEL.ICIO.US
DIGG
OUR PREMIUM CONTENT
The Kiplinger Agriculture Letter
The Kiplinger California Letter
Kiplinger's Biofuels Market Alert
Kiplinger's Retirement Report
SUBSCRIBER HELP
CURRENT LETTER
Stock Market Panic:
What Happens Next?
PREVIOUS ISSUES
Employers over the next several years will significantly broaden investment choices in their 401(k) plans and add features that will widen employee participation.
Plan sponsors increasingly will give workers what amounts to free rein over their 401(k) investments through a "brokerage window," or "self-directed brokerage option." Under such an option, the sponsor designates a brokerage firm that employees can use to direct their 401(k) money into any mutual fund or stock of their choosing.
Although currently offered by few companies, brokerage windows are beginning to gain acceptance, according to human resources consulting firm Hewitt Associates. About 7% of the employers Hewitt surveyed in 1999 offered the option, compared with less than 1% four years earlier. Industry analysts say the option will catch on with more firms because workers increasingly want more of a say in where their 401(k) funds are invested, and they may feel constrained by having just a few mutual funds to choose from.
But don't look for brokerage windows to take over the 401(k) world. Their growth will be strongest in industries with large concentrations of high-income and highly educated employees, including law, accounting and computers. Outside of those sectors, there still will be plenty of workers who won't want to be bothered with doing their own research on financial markets. Thus, a majority of companies will continue to have a set number of mutual funds as their investment choices.
Whether or not most companies embrace brokerage windows, most will increase plan choice by widening the number and types of mutual funds they offer workers, according to Joseph Hessenthaler, with Towers Perrin. In addition to the standard large-cap, small-cap and stock-index funds, more companies will add blended funds and international funds.
Other changes on tap for 401(k)s will involve increasing employee participation in the plans. More employers will waive the traditional year-long period that new hires must wait before joining a 401(k), allowing them in after just 30 or 60 days of service.
That change will come about for two reasons. First, the chronically tight labor market is forcing firms to become more competitive in the benefits they offer, and employers are finding it a helpful selling point to let new employees join a 401(k) soon after being hired. Second, the increasing use of computers and the Internet to administer 401(k)s is enabling companies to push through the paperwork on new hires much faster.
Employee participation will also get a boost from an increase in the use of so-called automatic enrollment. Under a 1998 Internal Revenue Service ruling, employers can automatically withhold up to 3% of a worker's pay for deposit into a 401(k) plan without the worker's express consent, as long as the employee is allowed to opt out before the withholding begins.
Most companies held back from implementing automatic enrollment because it wasn't clear from the '98 ruling whether it covered only new hires or applied to all employees. Earlier this year the IRS issued a new ruling making it clear that existing employees are covered, a move that is prompting more companies to adopt automatic enrollment. In fact, automatic enrollment is "a feature that will be more of the norm" in a few years, says Tom Rossi of Watson Wyatt Worldwide.
E-Mail Article
Print Article
Reprint Article
|
|
|
|
|
|
|
|
