401(k) Enrollment Process

NancyJ

Just want some feedback on this one....

We started another company, and of course wanted to setup a 401(k) plan for the employees. After a lot of research, proposals, etc., we finally settled on Union Planters. Good plan design, employee support, MorningStar Clear Futures, etc.

Everything's going along swimmingly, until we get to the actual enrollment process. They want the employees to specify on the enrollment form only the contribution percentage they want, not the allocations. They will automatically deposit these contributions into a MM fund UNTIL the employee logs into their website or calls their 1-800 number to then tell them how they want the contributions allocated going forward.

Now, I have never seen this arrangement before. UPB insists that it eliminates key errors on their side, I say it's just another way to cut their workload. IMHO, with 650+ employees in this new company, chances are many of them will forget to log in, or call, or forget the instructions (which they will hear at the enrollment meeting), which will create a huge burden for my poor Benefits Coordinator (yes, that was singular) to stay on top of this.

Anyone else have a setup like this? Am I out of line to argue this point? In my history the employee has always indicated in writing on their enrollment form the contribution percentage AND where they want it to go.

Sorry for the length of the post - I'm a little frazzled!
x:o

HRQ

I haven't seen that kind of set up either. I guarantee most of my employees would forget to do the follow up work too.

Did they really have so many keying errors that they felt it necessary to refuse to do the work in order to avoid the errors? Not very good service or approach to problem solving...

MrCreosote

For our 401(k), employees can choose investment options, but the default is MM if they forget to do it, or do it incorrectly. We've just started to allow employees to enroll completely online, and so far I am quite happy with that - no forms at all, except the salary reduction agreement. We do have the paper option, though. For our 457(b), it's like you describe, but employees can't change investments online - only by phone.

mwild31

[font size="1" color="#FF0000"]LAST EDITED ON 06-07-04 AT 03:10PM (CST)[/font][br][br]I would say it's pretty standard - listing only the contribution percentage on the enrollment form and then having participants call in after the first contribution to set up their allocations. We switched 401(k) providers about 2 years ago. We were with Merrill Lynch (Bisys is the TPA) and we reviewed several plans, T. Rowe Price, American, Fidelilty, Prudential and a few others - they all have the initial contributions go to the equivalent of your plan's money market account. It's my understanding that the initial contribution to the money market account is really about ensuring the electronic transfers happen as they are supposed to & if mistakes should occur, they don't have to trace/refund/reconcile the contributions over several accounts - just one.

mushroomHR

Our 401k allocations are done on the enrollment form. I know my employees would never call or go on line to allocate their contributions. What a mess that will create. As a Benefits Administrator myself, this would be an absolute nightmare for me.

POPEYE

Ditto to designation at enrollment. However, for changes of allocation or percentages etc. once enrolled, the EE must do them on-line or by phone.

Don D

It's not at all unusual to have a 'default choice', initially, and the employee then has to go in, online, and consciously change their investment options. It's not a matter of 'lazy' on the part of your administrator. It's simply a matter of setting up the account. It's common.

bsa

We have American Funds/Bisys TPA. Our enrollment form ask for contribution amount and investment designations. The majority of our employees don't have internet access and wouldn't make a follow up phone call until they got their first quarterly statement ... maybe.

E Wart

Nancy, this is the "new way to do thing". I thought it was crazy until we began doing it and now I love it. (Again removes some of that work from us as well as takes us further away from the employees decisions and influence.) We have Fidelty. When we went witht hem 3 years ago, employees completed form with elections and I input on web site. (Which scared me to death because what if I made a mistake.) Now I can't input or change any of this and it is the employees responsibility. A good portion of our employees are not computer literate so can do on telephone. (Also we select the default, which of course is the money market.)
Sit back and relax and it will be fine. However, I do encourage you to continue to educate your employees about investments and choices. I hope your company sends our information on this to them.
E Wart

NancyJ

E Wart, how many employees do you have? Did you experience any issues with employees forgetting to allocate their funds, i.e. you need to follow up and remind them? That's my biggest fear - here it's "out of sight, out of mind". As soon as the 401(k) dog and pony show leaves town they completely forget they have to allocate. Obviously, the more "financially-savvy" folks will jump right on it, but the vast majority of our staff are not investment-types.

We will continue to have periodic mailers and seminars on investing for anyone who wants to attend, but we can't make it mandatory.

Thanks for the input.

E Wart

We have over 200 in 8 plants. If an employee does't call in or select their investments over the internet, then I get an error on my download (when I send in the funds) which I have to override. I then call the employee and remind them to do this. Usually they didn't understand what I was asking. Meanwhile Fidelity places their deferral and matching funds in the money market accout until the call to change it. It isn't as hard as it sounds. Also, then I don't really get inovled in anything with their investment elections.
Oh, I forgot to mention that at a couple of our locations I have someone who is really knowledgeable and gung ho the 401(k) and has access to the PC. I suggest that if people need help, they go to see this person. Then I give this person instruction that they ARE NOT TO TELL employe what to invest in, but just help them get to the right screen under their account. So far this has worked well. They are very rarely called upon but there if needed. (Or I can walk the employee through it if need be.)
E Wart

Don D

[font size="1" color="#FF0000"]LAST EDITED ON 06-13-04 AT 10:58AM (CST)[/font][br][br]I like E Wart's comment about 'taking us further away from the decision process'. It's time for us to all admit and embrace the fact that for too long "personnel" has held everybody's hand through all their decision making processes regarding benefits of every sort. The wave of the present is to put that responsibility where it belongs, individually. I don't want some widow criticizing me 10 years from now for some decision she says her deceased spouse told her "personnel" suggested he make. Nor do I want someone storming into my office at tax time reminding me that I'm the one who suggested he enter "Married with 3". Defaults are established and set up for that reason. And if the employee is too lazy/incapable/computer illiterate or simply disinterested to do that, the default continues to function forever. I have been the administrator of two 401(k) plans and the IRS makes it illegal and feduciarily unethical for a manager in that capacity to make financial decisions or fund-choice recommendations to participants. But, the basic truth is, it just ain't our responsibility.

amwkim

We too are doing it this way. You would be surprised how many people remember to log in and elect their options after realizing they aren't making any money in the MM.

Frenchie

We are with Franklin Templeton, and that is the process we use.We really haven't had any problems. We have tried to educate our associates and make them understand that they have some personal responsibility for their account. If it is important for them to have a diversified portfolio, they will remember to log on and select their investments. That being said, I do review the quarterly statments and if I see someone just in money market I contact them to see if that's really where they want to be. If not, I help them to make their selections on the website.

juju

I have been reading through all the responses and I have to add my experience. Our plan requires that employees select their allocations on their enrollment form. As Don mentioned, we are very careful about advising them as we are not licensed to do that. I usually refer them to the pension administrator's 800 number for specific advice. Regardless they must have their allocations made before we can take the form.

If our employees were required to go online or call an 800 number to allocate their funds, I can honestly say in 85-90% of the cases it just wouldn't happen. The majority of our employees have no knowledge of the computer or just don't know enough about the importance of it all to make that effort. If we had more of an "office" culture like some of the above posters, I can see that scenario working. But NancyJ, if your employees are like ours, I can understand why you would be concerned. That would not fly here, and our employees would be the ones to suffer.

E Wart

juju, We are not an office culture and I thought the same thing you and Nancy thought when we went in with Fidelity almost 3 years ago. However, I have been very pleased at how well it works. They can use the telephone as well as the internet. They talk with each other and some folks are informed. We have about a 97% participation rate and have never not passed our testing.
As I am sure you can tell, I LOVE this benefit.
E Wart

NancyJ

JuJu, E Wart, thanks for the input. The plan is rolling out now, and the online system will be up in about 48 hours, so we're all keeping our fingers crossed here. Don, I could use a hug and a prayer or two... x;-)

Overall, I believe our group is pretty smart (we're a large medical group, so I hope so!), but benefits tend to be forgotten pretty quickly in a busy medical practice.

I'll let you know how it turns out!

SLPaulson

This is great "info" as we are preparing to change our 401K plan. However, I have been searching for information regarding the "legality" of entering everyone into the 401K plan and if they want to "opt-out" the EE must come in and sign a waiver. Do any of you practice this procedure?

NancyJ

We actually started this feature with our new plan. We have two companies running under the same roof, and the one with the existing plan has all kinds of problems with meeting the tests for participation and contribution levels. So when we started this one we have a "Negative election" feature, but we orientate in the first week, the EE signs a form indicating that they understand, they receive notices at 30-60-75 days, and then on the 91st day they are enrolled at 2%.

It kicks in on 8/1/04..... stay tuned....

Don D

Yes, as I mentioned, this is what we do. Every new hire is automatically defaulted into the plan at 4% contribution and if they want out, they have to opt out through the computer using their personal ID and password. We have a cadre of lawyers and IRS experts, so I have no doubt as to the legalities.