Sponsors offer more 401(k) investment choices.

Eighty-four percent of 401(k) plan sponsors offer participants at least four investment options, up from 73% a year earlier, according to a survey by Buck Consultants, Inc., a New York City employee benefits and compensation specialist.

"Some of the increase may be attributable to the release of final section 404(c) regulations of the Employee Retirement Income Security Act," according to Buck. These became effective in 1994 and aim to protect sponsors and other 401(k) plan fiduciaries from liability for plan participants' losses. Compliance is voluntary and adds to the cost of administering 401(k) plans but does offer added liability protection.

According to Richard Koski, a benefit consultant at the firm, the plan sponsor must offer at least three different fund choices, the employees must be able to move their money among the funds at least quarterly and they must receive enough relevant information about plan features and investment alternatives to enable them to make informed choices. "I think it is implicit that a sponsor may need to explain some of the basics about investment vehicles," he said.

The survey report, 401(k) Plans: Employer Practices & Policies, said the average number of options offered was 5.4, and more investment choices seem to be in store, since 76% of those considering making changes said they expected to offer more options. The table on page 14 shows a breakdown of respondents' investment offerings.

The number of organizations offering 401(k) plans has increased over the past decade, the report showed. In 1984, 36% of respondents reported having such plans, with 62% of employees participating; in 1994, 93% of the respondents offered them and participation was 78%. There has been relatively little growth in sponsorship or employee participation percentages in the last four years, however.

Other plan features. Loans are a popular feature, since they offer participants access to funds before retirement at a generally lower interest rate than is available from other sources and they allow repayment through payroll deductions. Most respondents have provisions for loans (81%) and nontermination withdrawals (90%) and 47% of those without loan features are considering adding one.

Limits on employee contributions varied. Pretax amounts ranged from 5% to 25% of salary, but 85% of the sponsors had limits between 10% and 16%; the overall average was 13.7% Aftertax employee contribution limits ranged from 1% to 21%, with the average being 12.3%. Eighty-four percent of the respondents made matching contributions, and 56% used a fixed amount per dollar, which was limited by a maximum percentage of the employee's contributions.

For more information about the survey, which covers contributions, investment options, asset allocation, loans, recordkeeping and administration, or to order a copy of the report, contact Carolee Martin, manager of marketing, Buck Consultants, Inc., 500 Plaza Drive, Secaucus, New Jersey 07096-1533. Copies are available for $100 each.

RELATED ARTICLE: Percentage of 401 (k) sponsors offering various investment options(*)

Investment vehicle                               Percent

Bond funds and securities
  Money market fund                                48%
  Managed bond fund                                29
  U.S. government and securities                   20
  Passive bond fund                                10

Equity funds
  Index stock fund                                 63
  Growth stock fund/small capitalization fund      54
  Income fund                                      42
  Company stock                                    33
  International equity fund                        23

Other fund types
  Stable value funds([dagger])                     79
  Balanced fund                                    61
  Life-style-life-cycle fund                        2
  Derivative fund                                   1
  Other                                             8

(*) Based on responses from 366 sponsors The entire survey included responses from 479 sponsors from across the United States, in both the service and industrial sectors The organizations ranged from those with under 1,000 employers to those with more than 5,000 Since sponsors offer multiple options, the percentages do not add up to 100%. ([dagger]) Includes guaranteed investment contracts (GlCs), pooled GlCs, separate account GlCs, synthetic GlCs, traditional bank investment contracts and short-term investment funds (Although GlCs have come under fire in the past year, Buck's Richard Koski said he did not expect this to have an appreciable impact on the percentage of 401 (k) plan sponsors that will offer GlCs as an investment option "Sponsors want to have a fixed-income type of vehicle under their plans and these are still the most common of this type The problem cases are still few and far between; sponsors will be more selective in picking their providers.")