After AOL, How Will Regulators Protect 401(k) Plans?

AOL attracted plenty of bad publicity when it tried to change the timing of its 401(k) matches to an annual lump sum. But who else is doing it, and how widespread is the practice?

It’s nearly impossible to say beyond individual anecdotes. Companies don’t have to report such things to the Labor Department, and many are loath to disclose their practices, especially given the recent news.

The top securities regulator in Massachusetts is trying to change all this. In the first sign of political pressure since the AOL incident, William Galvin, Massachusetts secretary of the commonwealth, sent a letter this week to the country’s 25 largest 401(k) plan administrators — companies such as Fidelity and Charles Schwab — asking them how many firms have shifted their matches to an annual lump sum.

Galvin is also asking them to reveal what information is being given to employees about the risks of such a change.

Galvin said that one of the problems is that most employees don’t spend a lot of time looking at their 401(k)s. And many of them probably miss tweaks that could hurt their ability to save enough for retirement.

“Whatever we find, we’re certainly going to share with people, and hopefully we’ll provide and provoke a discussion among those of us who regulate custodians as to what minimal information is provided,” Galvin said.

Information on the quality of 401(k)s is patchy. Several consulting firms do surveys asking companies questions, such as when they time their matches, but the information is all self-reported. Firms have to report some details to the Labor Department, but there isn’t much standardization.

For a major retirement savings vehicle that an increasing number of Americans will depend on, there’s surprisingly little information tracking the quality of the benefits.

“This is the type of thing that can lead to increased disclosure,” said Mike Alfred, head of Brightscope, which independently evaluates company retirement benefits.