Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, May 10, 1993 TAG: 9305080029
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: BY RUSS STANTON KNIGHT-RIDDER/TRIBUNE
DATELINE: LENGTH: Medium
Thank Uncle Sam.
Under Labor Department rules taking effect Jan. 1, employers who offer their workers wider investment choices will see their legal liability for those options reduced. To qualify for that edge, a plan must offer:
At least three investment options, offering a broad range of risk and return. They cannot include a Guaranteed Investment Contract - a safe but low-yielding investment sold by insurance companies - or company stock.
The ability to transfer money among those options at least once a quarter, more frequently if some of the choices are considered volatile.
More information about the investments so employees can make informed decisions.
Companies that offer these plans don't have to go along with the new rules under the Employment Retirement Income Security Act. But they face far greater financial risks - and as yet uncertain financial consequences - if the investments their retirement plans offer go sour, wiping out their employees' savings along the way.
"We don't know yet what those penalties will be because we haven't had a good court case to establish that," said Peter Stephan, president of Irvine, Calif.-based Pension Group. "But it's safe to say that if you don't comply and something goes wrong, you could be subject to a heavy judgment."
Most large employers already meet the new criteria, but most companies employ fewer than 100 people.
And when it comes to retirement plans, the size of the company often dictates the quality of the plan, said Bob Wuelfing, president of Access Research, a Connecticut-based employee-benefit consultant.
A survey of the 401k market - nearly 190,000 U.S. companies offer the plans - found that:
Companies with more than 1,000 workers are more likely to offer 401k plans than smaller ones.
Large companies also are more likely to offer more investment options - 53 percent offer four or more - than small ones - 39 percent have four or more.
65 percent of workers who participate in 401k plans put their money into conservative and low-yielding GICs or company stock-purchase plans. That's because those are the two most common choices offered in many retirement plans.
If your company retirement plan offers fewer choices than that, you should contact your plan administrator or human-resources office and request that more options be added, said Bill Thompson, marketing director at Fidelity Institutional Retirement Services Co., a unit of the Boston-based mutual-fund giant. "We're finding that small companies want to offer the same benefits as larger firms, and many are receptive to the idea," Thompson said.
by CNB