Benefits May 19, 2004

Mercer: More Hazards for Non-Advice Providers

May 19, 2004 (PLANSPONSOR.com) - Even though fear of being sued has scared many plan sponsors away from offering participant investment advice, they may actually be better off taking the advice plunge.
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The danger, wrote Mercer Investment Consulting senior consultant Scarlett Ungurean in a research report, is that plans without advice components will be laid bare for lawsuits from disgruntled older workers claiming the company didn’t properly guide them to save for retirement.

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Stated Ungurean: “In this time of financial uncertainty, complex markets, and retirees with long time horizons, it is in the best interest of plan sponsors to offer well-structured advice programs to 401(k) plan participants.”

Making things more challenging for plan sponsors is the movement to participant-directed investing that Ungurean said “has put pressure on participants to make the ‘right’ investment selections, on plan sponsors to provide sufficient information to participants, on regulators to manage and protect these investors and on the markets to contend with these inexperienced investors.”

In addition to summarizing the regulatory framework governing advice – notably that from the Employment Retirement Income Security Act (ERISA) – and providing an overview of online and managed account service delivery models, the Mercer report also touches on two pending Congressional advice bills. Sponsoring those measures are U.S. Representative John Boehner (R-Ohio) (See House OKs Advice Bill ) and U.S. Senator Jeff Bingaman (D-New Mexico).

“It is surprising how such an easy concept of providing advice becomes very complicated once the legislation and the different advice business models are considered. The plan sponsor’s fear of litigation has stalled many plan sponsors from offering advice to participants, “Ungurean wrote. “Although the cost of not offering advice should be factored into the equation, such as the cost of employees staying in positions because they cannot afford to retire, the cost of severance or early retirement programs to get employees off the regular payroll, and the eventual cost of litigation when employees show that the information received from the plan sponsor is not sufficient to allow the participant to make the ‘right’ investment choices.”

The paper, 401(k) Plans: Are Employers Taking on More Risk by Providing Investment Advice to Participants may be downloaded here . A free registration is required.

Products May 18, 2004

Amex Pulls Cover Back on Mid-Size DC Product

May 18, 2004 (PLANSPONSOR.com) - American Express Retirement Services took a dive into the mid-size defined contribution plan market Tuesday with the unveiling of its new targeted plan product as well as a partnership with a new recordkeeper.
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In its announcement, American Express said its NEXTPlan product was aimed at mid-size companies and organizations with $5 to 50 million in DC plan assets and that it would be sold primarily through financial advisors and other plan intermediaries.  

According to American Express, plan sponsors can take advantage of daily recordkeeping, paperless processing, online plan administration tools and an account team with a variety of investment options. Participants benefit from both web and phone transactional account access with the latest in account management features.

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Core investment options are available from a range of American Express Funds. In addition, NEXTPlan provides access to mutual funds from outside fund managers, giving employees the ability to utilize mutual funds from 16 mutual fund companies. This total universe of close to 400 funds covers a wide spectrum of investment objectives and share classes – from capital preservation and safety of principal to long-term capital appreciation and growth. NEXTPlan brings additional capabilities, such as self-directed accounts for participants and non-qualified plan services, the announcement said.

American Express said NEXTPlan clients would also have access to its financial education programs through its network of local delivery including education on participants’ complete financial picture. In addition, NEXTPlan offers program designed for executives, something unique to this market segment.

“Many growing companies often find their level of retirement plan services struggling to keep up with the needs of their growing employee base,” John Baker, chief operations officer for American Express Retirement Services, said in the annoncement. “NEXTPlan takes them to the next level of retirement plan services with a cost-effective and efficient platform with higher levels of service and flexibility specifically designed to keep pace with the needs of growing mid-sized companies.”

A Recordkeeping Partnership

The other significant aspect to Tuesday’s announcement was word that American Express had awarded a bid for recordkeeping services to  Great-West Retirement Services , a unit of Great-West Life & Annuity Insurance Company, which Baker said won the block of business from a field of 23 providers. The decision culminated a months-long RFP process started last year (See  Common Ground ). Specializing in private-label recordkeeping services for small and mid-market DC plans, Great-West Retirement Services offers American Express an array of services, plus experience working with outside distribution channels, American Express said in the announcement.

Recent Great West data shows that it handles 11,939 plans including 11,700 of those having between 1 and 1,000 participants. In recent months, Great West did a partnership deal with Wells Fargo (See Great-West, Wells Fargo Team Up For Small Plan Product ) and acquired Federated Insurance’s group retirement business (See Great-West Seals Federated Retirement Business Deal ).

Baker told PLANSPONSOR.com that expanding the American Express advisor/intermediary channel was a good business move. “ We’ve only been a direct shop in the large market,” Baker said. “(But) we think there’s oppportunity to continue to sell direct. Not to play in the intermediary market would be foolish if you’re interested interested in growth.”

Although no final decision has been made, Baker aid American Express continues its internal discussions about continuing its incursion to plan segments outside the large end of the market.  “Ultimately we think we will be going down market,” Baker said. “We’re very intersted in continuing our dialigoue about how we can continue to grow.”

American Express Retirement Service recently announced the completed transition to its new BlueStar platform, where its existing client base is now being serviced (See  Amex Waves Bye-Bye to Old RK System ). 

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