GM Turns on Advice Engine

February 3, 2003 ( - General Motors has expanded its 401(k) offerings with the addition of retirement planning investment advice from Financial Engines to the 100,000 participants in GM's Savings-Stock Purchase Program (S-SPP).

Participants will access Financial Engines through, the vehicle manufacturer’s benefits web site.   The cost of the service will be paid from plan assets, Charles Tschampion, managing director of Defined Contribution Plans for GM Asset Management, told   GM has set a specific goal of a 25% participant adoption rate after the first year with the program.    

“Goal” Tending

That goal seems reasonable, but still ambitious, based on recent statistics.   Last year Financial Engines noted that, on average, its client base has a 15% adoption rate of those eligible for the service after one year (see  Medium Matters in Advice Adoption ).   Other factors can serve to boost that figure.   For example, the first year adoption rate is nearly 25% among participants with Internet access, Jeff Maggioncalda, president and CEO of Financial Engines, told last year.  

More recently, Financial Engines says that firms with online portals for employee news and benefits that have offered the Financial Engines Direct Access service for more than one year have an average “adoption,” or usage, rate of more than 25%.   Generally that means the participant has visited the advice tool at least once during that period.   

And whether due to the shifting legislative environment, Enron-related concerns, the evolution of available products, or simply a greater perceived need after three years of rough markets, investment advice does appear to be making inroads.   More than 37% of the respondents to the  2002 PLAN SPONSOR Defined Contribution Survey  offer investment advice to participants, with larger plans evidencing a heightened willingness to embrace the option.  

A year ago, just 16.7% of plans with more than $500 million in assets offered participants access to investment advice, but that had doubled to nearly 30% of the respondents in that segment in the 2002 results (see  Advice Access Expands in 2002 ).

For GM, the new service was "the next logical step" for a program that had a "fairly well developed guidance program" in place for their 401(k) program, according to Tschampion.   Working through the process took about 15-18 months, although there were pauses throughout.   Still, when push came to shove, GM was spared some of the concerns that have historically weighed on plan sponsors making the advice call.

First off, while cost was a factor, it wasn't really a major concern, once the decision to offer advice had been made.   There were, after all, "only a handful" of providers capable of offering the product GM had envisioned, and "all had about the same economics," according to Tschampion, who noted that GM was confident they could get the cost to the right level, regardless of their selection.   Also, they were "not really worried about litigation" - either the risk of offering advice, or of not making the tool available.  

For GM, which currently utilizes a number of mutual funds from Fidelity (who is also the firm's recordkeeper) as well as the automaker's own GMAM asset management arm for investment options, independence was a key consideration.   Tschampion also cited an emphasis on the quality of the methodology used and a proven track record on the part of the provider as key criteria.

Online "In line"

Additionally, taking advantage of the Internet to enhance the benefits package was "in line with GM's strategy" of expanding the use of web-based benefits tools, according to Tschampion.   "We anticipate that the Financial Engines service will drive usage and reinforce the value of our highly successful employee portal," he said.   According to GM, the number of times participants have accessed the S-SPP website has continued to increase since the site was launched in 1999, with 47% of all interactions with the program now being conducted through the web site.  

S-SPP account information will be pre-populated in the Financial Engines service, so that participants need enter only their birth date, income, and desired retirement age before they receive a forecast of how much their savings may be worth in retirement.  

Future Moves

Transaction capabilities will also be available in 2004 through GM's plan administrator, Fidelity Investments.

As is the case with many programs, at present, participants in the GM plan have an "over investment in 'safe investments'" and what Tschampion describes as an "overuse" of company stock, despite the ability to transfer from that option after a fairly modest holding period.

Participants, who currently have access to a dizzying array of some 70 investment choices, including company stock and lifestyle/asset allocation funds, will no doubt appreciate the extra help.