Reader Responses May 4, 2004

SURVEY SAYS: Have You Gotten Some Investment Advice?

April 17, 2003 (PLANSPONSOR.com) - Maybe it's just because it's the cover story for our upcoming May issue, but it's hard not to take note of the plethora of investment advice offerings bursting forth like spring flowers. This week we asked readers about their experiences with investment advice.
Reported by

A surprisingly robust 84% had sampled investment advice of some flavor or other – though many had done so outside of their own plans.   Of those who had used advice, nearly 41% had gotten advice in person, compared with 29% who had accessed online advice only.   Among those relying on online advice was this reader, who noted , “I’ve used our website’s education/advice tools but have taken little heed of the suggested allocation to bonds. Stocks are cheap and I’ve got a lot of ground to make up due to dismal personal savings.”  

As for the personal touch, one reader noted, “My wife and I got (c) in person advice for her retirement plan, and the advisor was nice enough to pick up the lunch tab.   Thing is, for a 1.6% operating expense on an index fund, dude had better pick up the lunch tab.”

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

Roughly 31% had taken advantage of multiple channels, while none had gotten advice strictly from a call center or from a friend/relative/associate (though many had tapped into both as part of a multiple strategy.)  

Oddly (perhaps) a significant number of those who had received advice had either ignored it – or had only relied on it for some of their decision.   There were also readers like this one, who had a different experience: “I was so busy at the time I didn’t get around to investing in the recommendations – THANK GOD!    The investments recommended to me were Enron and Global Crossing.   Needless to say, it was the last time I listened to him.   Unfortunately, some of the people here did take his advice.   They will be working until age 98.”    

But this week’s Editor’s Choice goes to what may be the ultimate advice on advice: “My approach personally and professionally is to pour over those performance tables, checking one year, three year, five year, ten year performance and comparing it to risk factor.   Then I see if Alan Greenspan has said anything today, consult CNN on Iraq news, check the astrological tables, ask my bartender – and leave it where it is.”

Thanks to everyone who participated in our survey! 

The only advice I get is from my wife (c).   We once spoke with an AMEX investment counselor because my company will give us $250 to pay for an investment counseling session.   However, we didn't get the feeling during the "free" part of the interview that the guy would tell us anything we didn't already know.   Subsequently, we cancelled the $750 in-depth consultation.   I had told him I wanted to know is (a) I was saving enough in my 401(k) and (b) is there anything else I need to do OUTSIDE of 401(k), and he never gave me an indication that he could provide those answers.

Yes, (e) more than one of the above: (a) on-line, (d) friend/relative/associate.   Now ask me if I took the advice?   -- I took the advice of my mom (smart woman)   -- isn't human nature interesting

No, only my own research and generalized risk/return classes.

I have worked for this firm for almost 9 years - May 4th is my anniversary.   I have NEVER received advice/education about the 401(k) plan that the firm sponsors.  

Though brochures, IVR and the Internet are excellent tools and resources, having someone/anyone come in to educate me about my plan would be more effective.

Investment Advice/Hot Air (same thing) from both the Armchair Financial Analysts and so called professionals.

In response to your Survey question about getting investment advice from my retirement plan...the only advice ever offered was via a 3-question risk assessment quiz.   Based on the answer to that quiz, one could allocate their dollars to any of 5 "Life-style" funds that were automatically allocated among the 25 funds in the plan.

Not bad...but not REAL ADVICE!!!

I think it's great that plans and funds are getting themselves together to assist participants in planning and allocating their money...it's long overdue.   Since we each are responsible to creating our own retirement funds, we need to be as educated as possible!!

Thanks for asking the question!!!

NO - our plan does not offer investment advice.

I tend to keep my own counsel.   I don't seek advice although it is out there.   Everything I need to know I learned in Graduate School, not kindergarten.   The best advice is still buy low, sell high.

e) Over the last few years...and all of it seemed to me to say I am too conservative with my investments and needed to be more aggressive.   If I had acted on it, I would have very little retirement account left.   It is unfortunate that I didn't realize as much gain as I may have in the late 80s and early to mid 90s, but I guess I am reaping my harvest in not losing as much now.

Years of reading about investing and my own experience, some god and some not so good, has taught me all I need to know at this point.   Other plan participants come to me for investment advice, which I am very reluctant to give.   I generally recommend Bruce Temkin's The Terrible Truth About Investing as a good place to begin.   I've tried out some on line advice programs out of curiosity, and to try to find something that might be useful for our plan's participants generally, but so far I haven't found one I thought would be practical.   However, the "on-line advice industry" is still in its infancy and I think we can expect some decent products over time.

My answer to this weeks question is: (a). I've used our website's education/advice tools but have taken little heed to the suggested allocation to bonds. Stocks are cheap and I've got a lot of ground to make up due to dismal personal savings.

Yes, I get advice regularly on my retirement account investments.   I have an independent financial advisor that helps me make sure that my money is properly diversified and that the funds are performing to their benchmarks. I can't imagine not having an expert help me manage what is potentially my largest asset.   I guess that makes my answer (c).

a) But we call it Education at Fidelity!

I guess my answer is "c".   I have a financial advisor who handles my funds not in my retirement 401(k) plan and he has advised me on where to invest my funds within the plan.   He doesn't make any money off of it, but then he is getting paid for the other services he does for me so I don't think it is too much to ask for him to be aware of the whole picture.

(b)- My personal investments?    Everyone employed at -------- investments wants to give me advice.   I sure wish I had ignored them 2 years ago.   If I had, those funds would be in as good shape as my mass mutual account.

My approach personally and professionally, is to pour over those performance tables, checking one year, three year, five year, ten year performance and comparing it to risk factor.   Then I see if Alan Greenspan has said anything today, consult CNN on Iraq news, check the astrological tables, ask my bartender, and leave it where it is.

My wife and I got (c) in person advice for her retirement plan, and the advisor was nice enough to pick up the lunch tab.   Thing is, for a 1.6% operating expense on an index fund, dude had better pick up the lunch tab.

Well, of course I have gotten advice and it was online. I was pleased with it and went back as recently as two weeks ago.

How satisfied was I?   Mostly I was, but it is always a difficult proposition because my retirement is a number of years from now--that will really be the test, won't it?   I was in a unique position, though, since I had gotten extensive background in the method used, understood the various factors under consideration, understood and accepted why a risk questionnaire was not used by the advice provider, didn't mind inputting my information and was prepared with my documents.   All these variables need to be clearly explained to gain someone's trust and I'm not sure how well it can be communicated to large audiences.

Yes, I did get investment advice on my retirement account from our CitiStreet (Smith Barney) rep.   This was a few years ago, and I was so busy at the time I didn't get around to investing in the recommendations - THANK GOD!    The investments recommended to me were Enron and Global Crossing.   Needless to say, it was the last time I listened to him.   Unfortunately, some of the people here did take his advice.   They will be working until age 98.    

Our plan offers on-line advice through Financial Engines.

Answer: c

I got in-person advice from a Putnam representative. It was pretty good.

Constant Retirement advice both online and in the mail from American Express.   Also, constant reminders from my company on the need to save for retirement.

Was it helpful or worthy?   Not really.   Aside from the reminders that you need a will, retirement account, and SS won't exist for you, the information is run of the mill.   Furthermore, the irony is that the same world of retirement company's that have consistently lost money over the past three to five years (either by bad selections, misreading the financials of companies or listening to Jack Grubman) are now baiting me to "trust" them with my retirement.   I can lose money by myself just fine.   Kind of like the Iraqi Information minister saying the coalition was not in Baghdad.

I received investment advice through call center support. I received advice from one of the online advice providers (I have actually done quite a bit of testing and sensitivity analysis on two of them).   I paid for the service personally (it was not provided by my employer), so I had to do all of the input myself.   The final product was satisfactory, but the experience leads me to believe that online advice products will never survive.  

The products are too complex.   I have a BBA in accounting, have done graduate work in finance, have 11 professional designations, have built efficient frontier and stochastic models, provide financial planning services to individuals, and am responsible for the investment strategy for over $3 billion in benefit plan and foundation assets.   I had trouble using the product.  

I have many concerns about the advice.   I had to go through several iterations, before I felt comfortable that I had received a reasonable retirement forecast (primarily because I knew the answer before I asked the tool the question).   The few competent enough to use the products don't need to use the products.   I worry for the rest.   Take the very low usage rates, multiply it by the percentage that make it through the process, and then multiply that by the percentage who use it correctly, and you have a very small percentage of participants who are actually helped by the products.   However, once their circumstances change (or even, for example, if the market changes their allocation), they no longer have a plan that is appropriate for them.   They have to find the time to go back and use the tools again.   Considering that and the damage done to the participants who actually used it incorrectly, I can't imagine how the products can survive.   They were a great idea and are great tools (I will continue to use them), but they will never overcome the lack of knowledge, interest, and time on the part of participants.   I think it is time to give up on the education efforts and self-help tools and concentrate on how we are going to do it for them.

Thanks for the opportunity to vent...

I've gotten advice that I used from my broker and have discussed investments with friends and co-workers informally.

The pension rep for our plan comes to our facility a couple of times per year to give a market update and sometimes suggests that we move money based on economic trends or money manager changes at some of our mutual funds.   He is also always available by phone for personal advice.

Compliance May 3, 2004

Democrats Band Together to Bash Cash Balance Regs

March 17, 2003 (PLANSPONSOR.com) - As the comment period on proposed cash balance regulations wound down, a number of Democratic lawmakers outlined their opposition and laid out some key criteria.
Reported by

Led by Congressman George Miller (D-California), senior Democrat on the House Education and the Workforce Committee, 24 Senators and Members of Congress filed their official comments to the Department of the Treasury Friday at the close of the 90-day public comment period on a proposed change to federal pension regulations (see  New Rules Offer Hope for Cash Balance Proponents ).

The new proposed regulations, put forth last December by the Treasury Department and Internal Revenue Service, deal with the application of the pension plan age discrimination rules to cash balance plans.   Under the proposed rules, each employee following a conversion to a cash balance must start with a cash balance account calculated on an age-neutral basis. “Assuming that is the case, a “wear-away” period, during which cash balance benefits catch up with benefits under the traditional plan, would not run afoul of the proposed rules,” Treasury noted at the time.   A public hearing will be held on the regulations on April 9.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

The letter from the Democratic lawmakers calls on Treasury to withdraw the proposed regulations pertaining to cash balance pension plan conversions, and to re-issue revised proposed regulations that “protect the pension promises made to long-serving employees.”

Specifically, the letter calls for addressing the following concerns:

  • No Loss of Benefits : Acknowledging that employers should be able to make changes to their pension plans, the letter says "those changes should not be permitted to reduce benefits already earned or to reduce accruals on the basis of age, and in the case of "unclear" cash balance pension plan and similar hybrid conversions," the lawmakers say that companies should be allowed to convert to cash balance plans "if they grandfather current vested participants by allowing them the choice of the better of the two plan benefit accrual formulas."
  • No Wearaway of Benefits : Acknowledging that the proposed regulations prohibit the wearaway of workers' earned benefits (periods in which workers earn no new benefits), the lawmakers term that a "half step."   The lawmakers say, "Banning wearaway is the least that Treasury should do in its regulations."
  • No Whipsaw :   The lawmakers say that the proposed regulations should "clearly state that interest rate assumptions for purposes of calculating opening account balances, discounting annuity benefits, and any other purpose should be based on the IRC section 417(e) rate."   Noting that, "as a matter of policy, interest rate assumptions should be conservative and as uniform as possible to prevent abuse," the Democrats say employers should not be able to "game employees' benefits" by using different interest rate assumptions in projecting and discounting future pension benefit amounts (for more on the Whipsaw issue, see  Avoiding Whipsaw's Whiplash ).
  • Rate of Benefit Accrual Definition : Claiming that "Treasury is treading on very weak and dangerous ground," the letter says: "Treasury takes the enormous step of determining that the rate of benefit accrual under cash balance pension plans would be treated as they are under defined contribution plans, not defined benefit plans."   The letter says such a move would require either "express Congressional authorization," or be made "in the context of comprehensive rules that fairly balance the needs of employers and promises made to employees."
  • Opening Account Balances : The letter says that Treasury should require that opening account balances be set at the present value of participant accrued benefits determined as under the former defined benefit plan or the section 417(e) rate.
  • Pending Litigation : The lawmakers cautioned that Treasury should be extremely careful not to affect or undermine any pending litigation pertaining to cash balance plans and the ADEA, and make clear in any subsequent regulation that nothing in the regulation shall be interpreted to affect pending litigation.

Finally, the lawmakers say that Treasury also should require employers to provide more detailed information to the IRS and other agencies on the terms and effects of cash balance conversions, claiming that currently "employers do not provide clear information either to participants or the IRS on existing and cash balance pension plan formulas and how different categories of workers would be affected by the conversion."

The comments were signed by 19 House members and five Senators, all Democrats. Signing the comments were: Rep. George Miller; Rep. Bernie Sanders; Sen. Tom Harkin; Sen. Richard Durbin; Rep. Rob Andrews; Rep. Dale Kildee; Sen. Edward M. Kennedy; Sen. Barbara Boxer; Sen. Russ Feingold; Rep. Major Owens; Rep. Donald Payne; Rep. Lynn Woolsey; Rep. Rueben Hinojosa; Rep. Carolyn McCarthy; Rep. John Tierney; Rep. Rush Holt; Rep. Susan Davis; Rep. Danny K. Davis; Rep. Ed Case; Rep. Chris Van Hollen; Rep. Raul Grijalva; Rep. Denise Majette; Rep. Tim Bishop; and Rep. Timothy Ryan.

«