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401(K) Plans Said to Have Secure Future

Michael Perez recently became president of Emplanet, a provider of automated 401(k) services based in Westborough, Mass. Perez gained prominence in the 401(k) industry as a senior executive for Fidelity Investments' Retirement Service Company in Boston. As a Fidelity senior vice president of sales, he sold plans to companies such as Shell Oil, United Airlines and John Deere and maintained total assets of $20 billion. At the start of his 15-year tenure at Fidelity, he played a key role in the development of bundled 401(k) services, which quickly became an industry standard, according to Emplanet. He was also in the forefront of Fidelity's entry into pension and health and welfare administration in the early 1990s as well as its payroll and human resources information services programs. Before joining Fidelity, he was assistant vice president for the Northern Trust Corporation, where he performed investment analysis. He spoke with freelance reporter John P. Mello Jr. on issues affecting the 401(k) industry.

MFMN: What did the bundled 401(k) do for the industry?

Perez: It wasn't so much the bundling as it was the shift to daily valuation and easier employee access to a plan via the telephone. Mutual fund companies like Fidelity, Vanguard and T. Rowe Price had the vision to bundle plan and participant services with their funds to grow distribution. It made the plans immediate for participants. Instead of filling out a form every time you wanted to do something in the plan and waiting weeks for a confirmation, with the telephone and the ability to do something instantly, the plans became more interesting to participants. They became something that could be managed instead of something you put your money in and waited 30 years to touch.

MFMN: Why will automated 401(k) services revolutionize the industry?

Perez: They allow you to personalize your interaction with participants through the Internet. You can know so much more about participants. They can tell us what level of sophistication they are as investors, how close they are to retirement, how long they've been in the plan, their account balances and we can send communications to them that is targeted at their situation instead of producing a pretty brochure that is broad enough to encompass all kinds of investors in a plan in all kinds of situations and then let them find the right page or paragraph that suggests to them what they should do. It's kind of one-to-one marketing.

MFMN: Are there other advantages to automated systems?

Perez: They can get rid of so much of the cost that's built into a traditional provider's system that they can make plans much less costly for a sponsor or participant. That's very powerful. There are a lot of plan sponsors that are very concerned about the fees that they and their participants are paying. Participants are paying retail investment fees even though some plans have billions of dollars in them. It's expensive to operate a plan when you've got a large bank of phone reps and a large operations staff and you're mailing forests and forests of paper to employees. Automated systems take a lot of the people, paper and phones out of the process by utilizing the Internet and other technologies.

MFMN: What do you think the prospects are for 401(k) plans charging flat fees for their administration?

Perez: It's a legitimate way to address the problem of plan participants with more money in a plan paying more to administer the plan than participants with less money in the plan. If you go to the movies, whether you're rich or poor, you pay your seven bucks. But there will be resistance from the investment community and from plan sponsors. And I don't know if it is good for participants, either, because it could result in a scaling back of the services they receive.

MFMN: What do you think the next generation of services will look like in the 401(k) market?

Perez: One of the trends that I've seen is companies looking at their entire human resources and benefits departments as needing to become more employee self-service. There's a move toward connecting plans, too. You've got a pension fund, a 401(k), a health plan, a dental plan and insurance. Every time you make an [administrative] change in one of those plans, the system should be able to make that change in the other plans without you having to make 11 different phone calls or logins. Within 401(k), there's also a trend toward more flexible investment options. That not only includes more funds to choose from but a self-directed or brokerage option.

MFMN: Reports have been appearing recently predicting a dire future for the 401(k) industry because money is leaving the plans almost as fast as it's entering them. Is there trouble on the horizon for 401(k) plans?

Perez: I don't think the industry is in very much trouble at all, especially with the legislation now before Congress increasing contribution levels. It will be huge to the industry. It's pretty clear that 401(k)s are here to stay, and they're going to get bigger, not smaller. The market's not going to go down forever.