On Retirement

GROWING NUMBER OF PLAN SPONSORS ARE OFFERING INVESTMENT ADVICE

After years of debate, a growing number of plan sponsors are deciding to begin making investment advice available to their defined contribution plan employees. For public plan sponsors, this means some important changes may be ahead for local retirement plans.

Recent surveys show that the trend toward offering advice is clearly gaining momentum. One survey found that in 2004, 49 percent of the nearly 4,000 employers participating in a defined contribution survey reported offering advice to their employees, up from 43.5 percent in 2003 and 37 percent in 2002. This survey also noted that it seems inevitable the figure will cross the 50 percent mark in 2005.

The debate about offering investment advice to defined contribution plan participants reflects two concerns. On one hand, plan sponsors argue that participants could come back one day and say that the plan sponsor, as part of its fiduciary responsibility, should have educated them on how to invest for retirement.

On the other hand, some plan sponsors argue that participants could in the future claim that bad advice had robbed them of comfortable retirements and that the employer was at least partly responsible because it had selected the vendor that offered the advice.

Surveys are indicating that plan sponsors view the practice of offering investment advice as a manageable risk in light of their evaluations of legislation and other regulatory measures.

As a result, public sector plan sponsors through their plan providers are beginning to offer investment advice in a variety of ways. Not long ago providers offered advice only online. Providers now have expanded their offerings to include one-on-one consultations, personalized print communications, and call centers.

The challenge for plan sponsors will be to ensure that the advice providers they hire are capable of meeting the expectations for each plan participant. Public managers that are contemplating offering investment advice should consider three important factors:

Fees. Providers charge asset-based fees for their advice services. Compare fees and look for a tiered fee structure that either lowers fees for participants as assets grow or places a cap on fees.
Service. Advice providers offer varying levels of service. Look for providers that offer a variety of service channels that include in-person consultations, Internet consultations, and printed material.
Investment methodology. The provider should be able to clarify the investment methodology behind its service. Inquire about that methodology to ensure that the investment decisions that affect employees' accounts are in their best long-term interests and will help them reach their retirement savings goals.

Offering personalized investment advice services to your public employees is a decision not to be taken lightly. For a growing number of plan sponsors, however, offering investment advice appears to be the right service for employees who need the most help in building retirement security.

—Joan McCallen
President and CEO
ICMA-RC
Washington, D.C.
www.icmarc.org

This article is intended for educational purposes only and is not to be construed or relied upon as investment advice. The ICMA Retirement Corporation does not offer specific tax or legal advice and shall not have any liability for any consequences that arise from reliance on this material. It is recommended that you consult with your personal financial adviser prior to implementing any new tax or retirement strategy. Vantagepoint securities are sold by prospectus only, and the prospectus should be consulted before investing any money. Vantagepoint securities are distributed by ICMA RC Services, LLC, a broker dealer affiliate of ICMA-RC, member NASD/SIPC. ICMA Retirement Corporation, 777 North Capitol Street, N.E., Washington, D.C. 20002-4240; 1-800/669-7400; www.icmarc.org. AC: 1205-406.

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