The mainstream media has often commented on the shift from defined benefit plans to defined contribution plans over the last few decades (see PBS FRONTLINE report). But there has also been a shift within defined contribution plans from “trustee” directed “pooled” accounts to “participant” directed “individual” accounts.

 

Years ago it was commonplace for employers to sponsor a “pooled profit sharing” plan. Each year the employer would determine how much to contribute and these contributions were held in a single account. The employer would appoint a trustee and/or investment manager to determine how to invest the contributions on behalf of all participants.

 

Then came the rise of the 401(k) plan. For some reason in a 401(k) plan it was decided that participants ought to choose their own investments. At the meetings I attended where sponsors contemplated adding a 401(k) provision, the logic went something like this: because participants would see the money come out of their paychecks they will want to be (and perhaps ought to be) more involved in the investment decisions.

 

We have moved from a situation where employees didn’t have to make any decisions, or have any choices, about retirement savings (e.g. the traditional DB plan) to a situation where employees have all the decisions, and have perhaps too much choice (e.g. today’s typical 401(k) plan).

 

Is this good or bad? As with any most questions, there isn’t a simple answer. However, some additional background might be helpful.

 

As most HR professionals know, getting participants to pay attention to their retirement plans can be tough. Aside from the few people glued to the web watching their account balance go up and down, the majority are not very involved. Why?

 

Deloitte conducts an annual  401(k) benchmarking survey. In these surveys, employers consistently report that the biggest barrier to plan participation is a “lack of employee understanding.” Similarly, employees most often report “Where to invest/which funds to use” and “How Much to Save for Retirement” as the more confusing parts of their retirement plans. While automatic enrollment features and default investments may alleviate some of these problems, they are not perfect solutions (see a related blog post on automatic enrollment).

 

So what about the participants who do get involved? How well do they perform?

 

Unfortunately, the answer is that they do not perform well. The Michigan Retirement Research Center published a working paper in which they analyzed a rich set of participant account data from Vanguard. They found that most “real-world” participants make mistakes by investing inefficiently and not diversifying their investments enough. In fact, participant investment mistakes account for the majority (76%) of their poor investment performance. These investment mistakes have a significant impact on retirement savings, reducing wealth by 1/5th over a 20 year career.

 

Given that many participants don’t want to manage their own retirement accounts, and those that do often make big mistakes, why would an employer give control to participants?

 

Unfortunately, some retirement plan providers told employers that by handing over investment choices to participants they rid themselves of fiduciary responsibility. While correcting this fallacy is beyond the scope of this post, you should know that the employer can never entirely eliminate their fiduciary responsibility.  In fact, improperly transferring control to participants can even lead to greater responsibility.

 

Does this all mean that participant choice is a bad idea? Yes, many times it is. However, for many employers taking away this choice is just not feasible. If you must offer participants a choice, do it right:

  • Have a well chosen list of investment options covering all asset classes.
  • Use no more than 9-12 funds (studies show having more funds can lead to more investment mistakes).
  • Consider having participants select between pre-mixed model portfolios instead of individual mutual funds.
  • To the extent you provide investment education, focus on answering the basic questions: How to enroll in the plan?, How much to save? and Where to invest?
  • Provide employees easy to use savings guidelines when they enroll in the plan (try the FPA Journal – National Savings Rate Guidelines for Individuals).
  • Periodically review participant asset allocation, individual investment performance, and retirement readiness. You can’t manage what you don’t measure.

Kevin Boercker is a credentialed member of the American Society of Pension Professionals and Actuaries (ASPPA) and holds the Qualified Pension Administrator (QPA) designation. Prior to joining Spectrum, Boercker graduated with Phi Beta Kappa Honors from Washington University in Saint Louis with a bachelor’s degree in Applied Mathematics.

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Me & My iPhone

Guest Post by Jessica Miller-Merrell, SPHR - Blogging4Jobs.com

 

Honestly, I’m not sure if I remember what my life was like before my iPhone or if I even want to.  I have access to maps, internet search engines, social networks, and a variety of applications to fulfill almost every want, need, and desire.  A recent study by Ball State and the Institute for Mobile Media Research found that college students are the fastest growing smart phone market segment.  Not surprisingly students are using these powerful mini-computers for both their personal and academic needs.  While I’m far from being a college student, these smart phones like the iPhone have made connecting, managing work and family, and networking even easier.

 

facebook-funThe ability of smartphones to link users to popular social networking sites may be another major reason college students are buying the devices in large numbers.   The survey found that about 65 percent of respondents use their smartphones to access social networking sites.  Oddly enough, the fastest growing age segment on Facebook is not college students at all. InsideFaceBook.com reports that while Facebook is still the fastest growing social media platform in the United States, almost half (50%) of U.S. Facebook users are older than 35, and nearly one-fifth top 45.

 

So when and how are these experienced business professionals accessing these sites?  Well, it is certainly not from their work PC.  A recent survey commissioned by Robert Half found that over fifty percent of workplaces in the United States block these social networking websites while another 19% only permit their employees to visit social networking sites like Twitter, Facebook, Ning sites, and Myspace but only for business purposes.  And with more than 3 out of 4 people owning cell phones, chances are these experienced professionals are surfing their favorite social network and catching up but not from their work computer.  Your star professionals are accessing blocked websites from their smartphone computer without restriction or monitoring.

 

Lost Productivity. Decision makers develop a social media and internet policy and disallow workers from viewing risky content and non-business related social media platforms.  Employees work hard to stay informed on the dos and don’ts around the office and use smartphones as a way to work around.  Nucleus Research reports that banning Facebook costs businesses 1.5% of lost productivity in the workplace.  Don’t even get me started on the number of hours wasted by decision makers and HR professionals who sit in committee meetings discussing what sites to include, not to include, and verbiage of their internet and social media policy.

 

Proxies. These are sneaky little ways to get around blocked websites.  Google boasts almost 7 million websites that list the word proxy.  For as little as $9.95 a month (and sometimes even free), job seekers can purchase proxy access to access company restricted websites through a proxy website.  Don’t believe me, look at the Google search results for yourself.  Not sure if your IT guy is up to snuff?  Ask him his opinions about proxies.

 

A Relevant Business Need. If more than half of the U.S. users on Facebook are of the age 35 or older, chances are these professionals are using the site for legitimate business purposes.  I often use my Facebook network as a way to give me a quick answer to a question almost like my online Phone-a-Friend option for everything from sales leads, to phone numbers, to the latest basketball scores because my morale is directly tied to my productivity in the office.

 

Stay Current. With market trends, business news, and just information in general.  Several years ago I learned about a large layoff that was occurring via an email before the layoff was announced to the public.  This email was sent to my personal email account which I had access to on my smart phone.  My team and I were able to react quickly and before our competition.  Situations like these have happened more than once.  Do you want your team to miss out on a once in a lifetime opportunity for your business?

 

Jessica is an author, new mother, and human resources professional with a passion for recruiting and all things social media.  Jessica has over 10 years of experience in human resources and recruiting.  She provides businesses with social media, recruitment strategies, and human resources consulting.  Jessica has been recently interviewed by Glamour Magazine, Entrepreneur.com, and Employment Digest.  Jessica’s upcoming book, Tweet This! Twitter for Business will be released in January 2010.  Don’t forget to follow Jessica on Twitter @blogging4jobs
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Recruiting for Retention

Guest Post by Michael LongThe Red Recruiter

 

Red_Lightbulbx25Fresh out of college – plunged into the fast-paced world of third-party staffing, I learned a number of good lessons about recruiting.

 

You see, the pressure was on.  Having paid for college myself, I was under water with student loans and additional debts that had accumulated over the course of my college career.  Even though I had been working about 60 hours a week, the cost of living in Washington, D.C. was very high! 

 

Once the staffing industry found me, there was no turning back.  It had to work!

 

I must have driven my various mentors crazy.  The questions just kept pouring out… “How do I…” – “What’s the best way to…” – “Is it legal to…” – Needless to say, they were very patient!

 

Beyond the processes and best practices, there comes a point when a recruiter develops their own style.  A moment when you realize… “Hey!  I’m a recruiter and I finally know what I’m doing!”

 

My “moment” came during a recruiting call.  It was the moment I realized how impactful clear expectations can be for a candidate.  While chatting with a potential applicant, I started getting very keyed in on explaining the expectations of the role – how they would be judged, what would make them successful, the good and bad parts about the position.  I’m not sure why I became so blunt… it just happened.

 

To my surprise, the candidate not only grew more interested, they openly appreciated the candor.

 

Long story short, the candidate accepted the position and started up in a contract-to-hire role with my client.  Later, she went on to get hired by the company.  I never told her that she solidified the way I recruit… perhaps I will someday.  Until then, I will take the lesson and use it in my future work.

 

Honesty and openness with candidates will lead to better hires and a higher level of retention.  If you want to keep them, make sure they know what they are getting in to.  You would want the same.

 

Do you sugarcoat your recruiting or do you put it all out there?  Do you have a non-negotiable part of your recruiting process?

 

Photo Credit, tiffa130

 

Michael_Longx100Michael Long (The Red Recruiter) is a small business owner that wears red shoes every single day. Based out of San Antonio, TX, Michael’s firm specializes in identifying the very best Human Resources and Social Media talent across the country. In addition to scouting out the best and the brightest, Michael is continuously engaged in speaking, training and consulting on the topic of social media as it applies to recruiting, job search, human resources and overall corporate strategy. @theredrecruiter
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