They Want Their 401s - k - salary reduction savings plan

Workforce, Dec, 2000 by Joanne Cleaver

Pensions aren't dead but their pulse is weak. Employees want to see the rewards of their 80-hour workweeks piling up in their retirement plans now. Here's a look at the demand for the self-directed nest egg, and what you can do to manage the work it entails for you.

Eavesdrop for a while at a nurses' station at Mercy Health Services in Baltimore and you're likely to hear plenty of tips being swapped. A few years ago, those tips were on homey topics like knitting, child rearing, and recipes. These days, however, the Mercy nurses are more likely to be talking about 401(k)s, investment strategies, and the stock market.

"Even the more mature senior nurses have grown to be 401(k) hobbyists. They track it daily, monthly, and quarterly," says Edward Opet, senior vice president of human resources for the hospital and its affiliated clinics and doctors' practices.

A scant three years ago, Mercy switched from a traditional pension plan to a 401(k). That's when the nurses developed their sudden interest in the opinions of Alan Greenspan and the relative merits of mid-cap stocks versus blue chips.

And though Opet pushed for the change so that his employees could take advantage of one of the most popular 401(k) features-portability-he has been delighted to find that the new plan also has turned into a powerful recruiting tool for Mercy. "We were the first to do it in the health-care arena [in this market] and it was an extra perk for employees," he says. "We're noticing that it's on the checklist of employees right out of school: Do you have a 401(k), and what is your matching contribution?"

For most employees, 401(k)s are no longer brave and no longer a new world. They're the standard retirement savings tool, and woe to the employer who clings to his faithful, if boring, pension plan as the only option. Employers and benefits consultants agree that 401(k)s have become the norm, and the appeal of the traditional pension is fading fast. In fact, the widespread enthusiasm for 401(k)s has turned out to be a catalyst for a whole new mind-set about workplace savings for retirement.

Pensions aren't completely dead, but they are definitely the wallflowers at this dance. Longtime employees who are vested in their pension plans aren't seeking ways to ditch them, but they're not paying much attention to them, either. A vast proportion of stock is still held by American pension funds, points out W David Hand, a principal with the Houston-based consulting firm Hand Benefits & Trust, Inc. Nevertheless, most employees don't think much about their pensions past a cursory glance at the annual statement of account. After all, anonymous fund managers are making all the decisions. Employees don't have to do much except hope that they get vested, and that's usually just a matter of hanging around long enough.

Conversely, many Americans seem to be thriving on the responsibility of self-directing their 401(k) assets. Over 53 million Americans participate in 40 1(k) plans, which account for $2.13 trillion in assets, says Hand.

"Who's pushing for change? It's both employees and employers, and they feed off each other," explains Tom Schlossberg, CEO of Diversified Investment Advisors, a Purchase, New York, consulting firm specializing in the design and maintenance of retirement plans. "Ten years ago, every aspect of a retirement plan was very different from today, [including] expectations for the plan and retirement itself. You focused on your job and trusted your employer for the future retirement plan.

"We no longer count on employers, and they don't want to be counted on. We want instant gratification, and total flexibility. In 401(k) plans, each person has an opportunity to influence the amount of money that goes in, and how it's invested. Employees can dictate how well the program is invested from the bottom up." If people still expected retirement to be a twilight of rocking chairs and grandchildren, they might be willing to settle for just a stodgy old pension and whatever shreds of Social Security are available when they finally throw in the towel at work. But expectations about what retirement is all about are changing dramatically (see sidebar). According to a survey on attitudes about retirement saving sponsored by Transamerica, people expect to accumulate enough money to have lots and lots of fun and security. A substantial minority really are expecting golden years: 41 percent of Generation X (people now in their 20s and 30s) and 28 percent of baby boomers want to have at least $1 million at the ir disposal when they retire. Obviously, Social Security isn't going to get them there. (In fact, most people--70 percent--believe that they can't rely on Social Security for a comfortable retirement, according to the survey.)

These sky-high expectations explain why employees aren't willing to passively watch a pension fund get managed for them. They want to have only themselves to blame if their golden years are anything but. Though the Transamerica survey shows that 58 percent of employees are "very satisfied" with their current array of retirement plans, a whopping 88 percent indicated that they'd rustle up additional savings strategies if they believed that their employer-sponsored plan was lacking.