SPARK PRESIDENT CALLS FOR NEW 401(K) PARTICIPANT ADVICE OPTIONS IN WAKE OF ENRON COLLAPSE

The impact of the collapse of Enron on thousands of 401(k) participants reinforces the great need for effective investment education, guidance and advice, and highlights the inadequacy of the current tools.

SIMSBURY, CT, April 8 -- The impact of the collapse of Enron on thousands of 401(k) participants reinforces the great need in 401(k) and other participant-directed retirement plans for effective investment education, guidance and advice, notes Robert Wuelfing, president of the Society of Professional Administrators and Recordkeepers (SPARK), a retirement industry organization. It also highlights the inadequacy of the current tools, he says in the group¡¦s latest annual Marketplace Update report.

Wuelfing says that to address participants¡¦ retirement planning and investment needs effectively, an advice/guidance product should be:

„« Inexpensive enough so that it can be incorporated into a bundled service package without material fee increases.

„« Sufficiently independent of the investment provider so results are perceived as impartial.

„« Accessible by all participants, whether they have computers or not.

„« Easy to use ¡V so intuitive that most participants will take advantage of it.
„« Capable of producing a meaningful, actionable result for most participants.

¡§The prominent online advice products, while relatively inexpensive and apparently independent, have yet to demonstrate that they can accomplish the last three requirements,¡¨ Wuelfing says.

The majority of the leading retirement service providers now make online advice products available to most of their plan sponsor clients, and upwards of 30 percent of all participants have the opportunity to use such advice, Wuelfing states. ¡§Unhappily, fewer than 25 percent of participants who have advice services available to them have completed the process and far fewer have returned to use the service again,¡¨ he says.

With both the need and the performance gap so apparent, Wuelfing expects the development of next generation tools and approaches ¡V online and other delivery media ¡V to accelerate over the next year or two. One promising approach he sees is the careful segmentation of the participant base in order to better target communications to groups of participants with similar demographic characteristics, attitudes, motivations, and learning styles.

The Marketplace Update also reports on retirement market sizing and growth trends. Some statistical highlights include:

„« Assets in the total U.S. Retirement Market experienced a net decline in 2001, dropping a little more than 4 percent to $10.9 trillion.

„« Assets in 401(k) plans dropped from $1.655 trillion to $1.6 trillion last year.

„« The total number of 401(k) plans in the U.S. rose by four percent to 369,000.

„« Defined benefit plan assets experienced the greatest drop, falling 6% to $4.5 trillion.
„« In 2002, an estimated 45 percent of the $182 billion in potential 401(k) distributions will be rolled into IRAs.

SPARK was founded in 1989 as an inter-industry group of investment managers and service providers, particularly in the defined contribution retirement plan market. Current membership includes 250 companies representing a broad cross-section of banks, mutual funds, insurance companies, third party administrators and benefits consultants. Its member companies provide services to approximately 95 percent of the nearly 40 million 401(k) participants in the U.S.