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Investors Say 401(k) Service Has Fallen

WASHINGTON - Less than half of 401(k) participants say they are "very satisfied" with the service providers that handle recordkeeping and investments, according to Warren Cormier, president of Boston Research Group of Hopkinton, Mass., and co-chair of the Spark Research Group of Simsbury, Conn.

Cormier, speaking at the Investment Company Institute's annual meeting here at a session entitled "Asset Retention and Increased Support to DC Sponsors and Investors," said that only 48% of participants were "very satisfied" with their plans in 2002, 5 percentage points lower than in 2000.

Citing a recent Spark study, Cormier said that defined contribution economics are declining. Administrative prices are down 15% since 9/11 and assets are down again in 2002. Expense ratios are not moving up, so revenues are down. Some staff sizes are declining. The number of relationship managers, telephone reps and clerical workers were all down, but lawyers and accountants were up.

However, the good news is that behavior is still stable, he said. Participants are not showing signs of leaving 401(k) programs and are making very few transactions to rebalance away from equities. They are only making small changes in the asset allocation of new money, he said. Meanwhile, few plan sponsors are thinking about suspending their plans.

Meanwhile, Charles Vieth, president of T. Rowe Price Retirement Plan Services, spoke about the negative image of defined contribution plans, challenges facing the industry, what's needed to help participants and the impact of all these on managers and distributors.

Vieth said that to remain competitive, industry participants must play a pivotal role providing advice and guidance.

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