How to Put In Your 2 Cents on 401(k)

Don’t like the investment options or the rules governing your 401(k) plan? It may not take government action to improve your plan.

Although workers generally don’t have a specific legal right to demand changes in their company’s 401(k), they often can influence change by approaching the right people.

“It happens here all the time,” said Bob Wynkoop, senior director of compensation and benefits at packaging company Ball Corp. in suburban Denver. “We have had a history of people writing in [with suggestions about the 401(k) plan]. We have made some changes because of the things they wanted.”

At most companies, employee input on 401(k) plans usually focuses on two areas: the number and variety of investment choices in a plan; and the rules that govern plan participants, such as who can join and when, the size of the company’s matching contributions and how issues such as loans, blackout periods and sales of company stock within the plan are handled.

Generally speaking, it’s easier to change the investment options than it is to change a plan’s rules. The reason: cost. It can cost millions of dollars for companies to alter the structure of a 401(k) plan because the process requires legal review and lots of communication with employees.

By contrast, adding or deleting investment options usually is simple and inexpensive.

The first step in pressing for change is to determine who’s in charge and how they operate.

“You are much more likely to succeed if you work within the system and understand how it works,” said Judith Mazo, senior vice president and director of research at Segal Co., a benefit-consulting firm.

At small companies, plan investment options often are chosen by top executives, such as the president, chief executive, treasurer or controller. If these executives are relatively accessible--as they often are in smaller firms--lobbying for change can be as easy as sitting down with the appropriate executive over lunch or at the company picnic.

At large companies, the process generally is more formal. An employee-benefits representative is likely to be responsible for communicating with workers and determining what to recommend to a plan’s trustees, who are responsible for the program’s design and investment choices. Some companies also have written guidelines that spell out the formal process by which plan investment options are selected.

To get the process started, it’s wise to contact whoever is in charge of benefits or human resources. If there is a formal committee that deals with the 401(k) plan, the benefit representatives should know who they are, how to contact them and whether they operate under a formal set of rules.

Doing some research on the criteria the 401(k) trustees use to choose investment options may help employees in building their case for new options. But realize that even if making a change would seem to be free and simple, the answer may not always be yes.

At Ball, for instance, the company changed its international mutual fund selections at the urging of an employee. But the company refused to add a technology stock fund two years ago because the firm’s financial advisors were convinced that employees were simply eager to chase the latest “hot” investment sector.

These advisors told Wynkoop, the compensation director, that adding such a fund could put workers’ savings at risk because what is hot one year often turns cold the next. Though some workers didn’t like the denial at the time, they stopped complaining six months later when tech stocks hit the skids, Wynkoop said.

Mazo, who serves as a trustee on Segal’s 401(k) board, said the board turned down a recent request to allow plan participants to trade individual stocks within the plan because the option would have cost every participant $5 per quarter in additional administration fees. That may not seem like much, but it’s like cable-TV fees, she said: There are lots of little charges that can add up to substantial amounts if you aren’t careful.

“Since only a few people were likely to use this, we didn’t think it was appropriate to make everyone pay,” she added.

Employees who are convinced that a reasonable request is being ignored don’t have recourse under federal law--unless they can prove that the plan’s structure or investment options are so bad that they violate the sponsor’s fiduciary responsibility to workers.

If a request is turned down, try again, some experts advise.

It could be that the request was rejected because plan trustees thought it had little support or wasn’t well-considered. The employee may simply need to do more research or gather support among co-workers.

Also realize that although companies may move slowly, most are anxious to make their plans as attractive as possible to workers, said Libby Sartain, senior vice president of human resources at Internet firm Yahoo Inc. That’s because offering a good plan is in the firm’s best interest.

“Most good companies have wonderful 401(k) plans with wonderful investment options,” she said. “The reason we do is because we are all competing for a scarce commodity--talent.”

Moreover, if too few rank-and-file workers participate in a plan, tax rules restrict the ability of top managers to participate as well. That gives everybody from the CEO on down a vested interest in making a 401(k) plan as attractive as possible.

“Employees have always asked their employers for different things in these plans, and largely because of that, 401(k)s are vastly better than they used to be,” Sartain said.