Employer Support Helps Advice Take Root

July 11, 2001 (PLANSPONSOR.com) - As plan sponsors continue to expand the availability of financial advice to their employees, signs are emerging that usage rates may be on the rise - and participants seem to be applying those tools beyond their 401(k).

Over the past couple of years, measurement of online advice usage has been spotty at best, in the absence of a link between the advice platforms and the recordkeeping platform, where the instructions could be implemented.  However, thanks to advancements in technology, and expanding alliances between advice providers and recordkeepers, the veil is lifting.

Savings Rate

Plan sponsors will be happy to know that users of online advice do tend to increase their savings rate, according to statistics obtained exclusively by PLANSPONSOR.com from Financial Engines.  A full 25% of those users increase their savings – and by an average of 40%.  Those results are based on a comparison of deferral rates from the first advice session to updated information gathered from the recordkeeper.

Those who use online advice also appear to be actively involved in the process.  A full third of those users proactively “lock” an investment, according to Financial Engines – meaning they specifically exclude designated investments from the analysis.  These individuals have opted to retain the designated investment(s) regardless of the advice recommendations.  

For plan sponsors the challenge extends beyond merely making the service available.  While evidence suggests that those who have made an effort to determine their retirement needs are better prepared – and more confident about their retirement prospects, most workers still aren’t making the effort.  
Employer involvement and promotion of the process appear to make a big difference in the final results, at least in the experience of one advice provider. “Sponsors who get excited about providing advice as a benefit, and take an active role in promoting it, turn that enthusiasm into adoption and usage within their organizations – which translates into a 3 to 1 increase in adoption rate success,” according to Brian Samuels, Vice President, Workplace Advisory Services, Financial Engines.

Tailored Approach

Dow Corning saw an adoption rate of more than 40% according to Dennis Hurley, Manager of Pension Investments. Financial Engines and recordkeeper Northern Trust Retirement Consulting (NTRC) used a variety of electronic and traditional mediums to promote the program, including co-branded emails, as well as posters and fliers.

Effective employee promotions need to take into account the backgrounds – and technology access – of workers.  For example, for the technology-proficient employees at Ericsson Inc., a purely online-based campaign introduced the program.  But at manufacturer Tomkins Industries, workers had limited Internet access – and their campaign relied on more traditional, paper-based methods such as postcards, custom welcome kits and posters.

Users do appear to be taking advantage of the tools beyond their 401(k) plan.  According to Financial Engines,

  • More than half enter more than one account in the planner
  • More than half enter individual stocks, with an average of six stocks

On the Horizon

Legislation recently re-proposed by Representative John Boehner (R-Ohio) would attempt to broaden the number of providers offering investment advice, permitting investment management firms and mutual fund companies to offer advice for a fee, a practice currently barred by ERISA.  The bill would also extend some formal protections to employers that offer these tools to their employees. 

Critics – including current advice providers – have expressed concern that the bill would expose participants to biased direction.