2002 Annual 401k Benchmarking Survey; 2002: The Year of ``Wait and See''.

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--Nov. 6, 2002

Despite the drumbeat of business headlines chronicling rocky markets and scandals in corporate America, 401(k) plan sponsors have put strategy changes on hold, opting instead for a "wait and see" approach, according to a survey released today by the Human Capital Advisory Services practice of Deloitte & Touche and the publication Pensions & Investments. The survey, the Deloitte & Touche 2002 Annual 401(k) Benchmarking Survey, covers trends in areas such as changes in plan design, investments, matching contributions, and participant communications. "One probable reason for the low rate of change is that sponsors may be waiting on specific congressional guidance before taking action," said Leslie V. Smith, Survey Director and Director, Employee Benefits Group of Deloitte & Touche. Surveyed for this benchmarking survey were human resources and employee benefits executives. The survey includes both national results and results by industry and region.

Never in the more than twenty-year history of 401(k) plans have plan sponsors and participants faced such a year. However, the Deloitte & Touche 2002 Annual 401(k) Benchmarking Survey does reveal some positive signs. For example, ninety-three percent of respondents say their plan participants are satisfied with the plan's investment options. Nearly one-half the respondents report they evaluate and benchmark plan investment performance on a quarterly basis, and within the last year, 28 percent have replaced a fund due to poor performance. Clearly, plan sponsors are monitoring investment performance and taking action where necessary. Plan sponsors also are concerned about investment education for their employees. One-third of those responding on the critical issues facing their plan mentioned investment advice.

The survey results indicate that the greatest challenge over the next year will be helping employees focus on investing for the long term. "Stressing the inherent advantages of 401(k) plan investment -- tax savings, periodic and automatic purchases to smooth the ups and downs of the market, and employer contributions -- should be a part of that effort. But, this effort also should include reinforcing the message to employees that the 401(k) plan is a retirement plan -- not a brokerage account, not a day-trading account, and not a place to gamble," emphasized Smith.

In 2003, employees are likely to see more guidance on how to handle stock in the plan, a greater focus on investment education, fewer plans including employer stock, an increase in safe harbor contributions, and caps on investment elections.

ABOUT THE SURVEY

The 2002 Annual 401(k) Benchmarking Survey, conducted in June and July 2002, was sent to human resources and employee benefits executives nationwide. Data were collected via either hardcopy or Web-based questionnaires. Deloitte & Touche worked with technology firm SuiteSmart, based in San Francisco, on the survey. No attempt is made in this summary to characterize the results as statistically significant or projectable to the entire population of U.S. employers. Rather, the survey provides a snapshot of employer concerns, strategies, and plan characteristics in 2002. While the results should be viewed as the experiences of the respondents only, the survey does provide the reader with a contemporary view of current approaches among many of the nation's leading organizations.

ABOUT THE RESPONDENTS

In all, 823 surveys were completed. Responding employers had an average of 9,169 employees. However, the distribution was skewed by 16 large employers with more than 100,000 employees; an average between 5,000 and 6,000 is more realistic. The respondents were distributed across all regions of the country and all industry groups. The largest number of responses came from manufacturing, representing 32.5 percent of total respondents, followed by business and other services (18.3 percent), financial services (14.3 percent), wholesale and retail (12.3 percent), and health care (5.8 percent).

About Deloitte & Touche

Deloitte & Touche, one of the nation's leading professional services firms, provides assurance and advisory, tax, and management consulting services through 30,000 people in more than 100 U.S. cities. The firm is dedicated to helping our clients and our people excel. Known as an employer of choice for innovative human resources programs, Deloitte & Touche has been recognized as one of the "100 Best Companies to Work For in America" by Fortune magazine for five consecutive years. Deloitte & Touche is part of Deloitte Touche Tohmatsu, one of the world's leading professional services firms, with more than 100,000 people in over 145 countries. For more information, please visit Deloitte & Touche's Web site at www.us.deloitte.com.

About Pensions & Investments

Pensions & Investments, published every other Monday, is the international newspaper of money management. It covers the world's largest defined benefits, defined contribution plans, foundations and endowments, as well as money managers and others providing investment services to these institutional investors. The P&I Group also published P&I Daily, a daily electronic newsletter.

2002 401(k) Annual Benchmarking Survey Additional Background

Plan Design Changes. Management of employer stock has shared the spotlight with many important current economic and financial topics during the last year. Surprisingly, less than 6 percent of plans that offer employer stock are considering any changes to the restrictions on company stock, such as eliminating or reducing restrictions on investment of company match (4 percent), eliminating or reducing restrictions on diversification of company stock (5.7 percent), eliminating future investment in company stock (1.7 percent), or capping investments in company stock (1.7 percent).

Investments. Participant satisfaction with plan investment option offerings remained steady at 93 percent, while the average number of investment options made available to participants (12.7) also remained virtually the same as last year. Naturally, in response to the high profile bankruptcy debacles, the survey focused on employer stock as an investment option. A 9.4 percent decrease was reported in the number of sponsors offering employer stock as a core investment option, from 33.4 percent in 2001 to 24 percent in 2002. An average of 20 percent of total plan assets remain invested in employer stock funds, a decrease of 1.4 percent from 2001. However, this percentage remains at the higher end of the recommended 10 percent to 20 percent that many investment advisors recommend as the maximum exposure to a single firm's securities. Fifty-nine percent of the respondents offering employer stock in their plan impose no limit on the percentage participants can invest in employer stock. An additional 15 percent of the respondents currently have no limit, but are considering imposing one. Conversely, 26 percent of the respondents imposing a limit on participant balances invested in employer stock indicated an average limit of 30 percent.

Company Matching Contributions. Matching contributions to 401(k) plans continue to be a popular form of providing retirement benefits to workers across the nation. Over 85 percent of respondents provide a matching contribution. Safe harbor contributions (generally a specific higher level matching contribution and immediate vesting) have greatly increased in popularity, from 3 percent to 25 percent of plans surveyed.

Participant Communications. A top priority of most companies is to offer and manage a successful employee retirement program, including a communications program to educate the employee and create the ability to make informed decisions as a plan participant. Seventy-one percent of the respondents said they offer customized communications programs (up 15 percent from 2001), 37 percent offer a generic communication program, 37 percent offer a personalized program, and 29 percent consider their program to be targeted. "We are seeing a decrease in the traditional communication methods -- printed materials and face-to-face employer meetings -- coupled with an increase in the use of the Internet and modeling tools. In other words, a clear trend towards the high-tech approach," says Smith.

Provider Relationship. Similar to last year's results, nearly all respondents (95 percent) report having a formal written service agreement with their provider. However, only 25 percent of respondents have service performance standards with fees at risk. While respondents give the providers high marks for services provided, they desire changes or improvements in three main areas: improved turnaround time, wider range of products and services, and a wider range of quality investment choices.

Plan Effectiveness. More companies (82.6 percent) view their plan as an effective recruiting tool compared to 71.2 percent of companies that view their plan as an effective retention tool. Both of these figures are down slightly from last year (-2.1 percent recruiting and -6.1 percent retention). "Employers are recognizing that in order to sponsor an effective 401(k) plan, they need to increase their employees' understanding of both the plan itself and retirement investment strategies. Nearly 50 percent of the respondents identified a lack of employee understanding as their largest barrier to a successful plan," noted Smith.

Eligibility. Nearly 70 percent of respondents allow for plan entry within the first three months of employment. There have been minimal changes to the age restrictions on eligibility; nearly 40 percent of all respondents require that employees attain age 21 prior to plan entry. Another interesting correlation is that shorter service requirements, particularly immediate eligibility, were positively related to the number of employees at a company.