There has been a lot of interesting 401(k) related news over the past week. Below are some highlights.

Fees to be scrutinized – A lawsuit against Wal-Mart alleging that the retail giant violated its fiduciary responsibilities by offering employees mutual funds that charged excessive fees was given “new life,” reports InvestmentNews. Dismissed by a lower court a year ago, an appeals court recently reversed that decision, and has sent the case back to the lower court. According to the article:

The court’s decision to send this case back to the lower court is significant, particularly given the size of Wal-Mart’s 401(k) plan, which has about $10 billion in assets, experts said. The court’s decision also gives hope to plaintiffs in other 401(k) fee cases, said Greg Ash, head of the Employee Retirement Income Security Act litigation group at Spencer Fane Britt & Browne LLP.

Balances Bouncing Back – Vanguard reports that “the typical 401(k) participant now has greater 401(k) retirement wealth than before the severe market downturn.” While that sounds pretty exciting, it’s important to note that the primary reason for this development is the fact that most 401(k) participants continued to contribute to their plans during the downturn. So while improving market conditions have certainly helped, it has been ongoing contributions that have been key to increasing account balances.

Getting Money Out of Your 401(k) - InvestmentNews reports that the Labor and Treasury departments are “discussing jointly submitting a request for comment from members of the retirement income industry to determine if there needs to be regulation of the market.” The article goes on to state that “ . . . the Labor Department and Treasury want to get a better sense of how products like annuities can be used within 401(k) plans in a seamless manner.”

And, finally, speaking of annuities, three lawmakers have introduced legislation in the Senate that would require DC plan sponsors to provide participants estimates of how much income they could expect to receive at retirement assuming that their current account balances were converted to an annuity. According to a press release on the Web site of New Mexico Senator Jeff Bingaman, one of the bill’s co-sponsors:

The . . . Lifetime Income Disclosure Act would require 401(k) plan sponsors to inform participating workers of the projected monthly income they could expect at retirement based on their current account balance. The measure is patterned on the Social Security Administration’s annual statements, which are mailed annually to working Americans to inform them of estimated monthly benefits based on their current earnings. Congress mandated annual Social Security statements in 1989, and they have proven to be very useful to workers in preparing for retirement.

By providing similar information for 401(k) plans, the Lifetime Income Disclosure Act would give American workers a more complete snapshot of their projected income in retirement.

A new report from Prudential Insurance reinforces the notion that solid employee communications serve to increase employee satisfaction with their benefits. In the words of the report:

A well-executed communication strategy can effectively educate plan participants and positively influence attitudes toward their benefits package.

A survey conducted by my firm two years ago came to very similar conclusions. In the Prudential study, 85 percent of employees who said their employers provided highly effective communications also said that their employee benefits are highly valuable. In Charlton Consulting Group’s survey conducted in 2007, 75 percent of employees who said they were very satisfied with their benefits and compensation also said that communications provided by their employers provided them a high level of understanding of pay and benefits.

Both surveys conclude that the investment in benefits communications and education is at least as important as the investment in the benefits themselves. As the authors of the Prudential report put it, “communications can have as much impact on worker satisfaction with benefits as the range of benefits offered or the perceived dollar amount of employer contributions.” Or, stated another way (with the approaching Thanksgiving holiday in mind), employees are thankful for their benefits only to the extent that they understand them.

Best wishes to all for a happy and healthy Thanksgiving.

Earlier this week, two people I follow on Twitter (Jennifer Benz and Dr. David Ballard) posted a link to an article about a survey conducted by WorldatWork and Watson Wyatt that found that employee engagement levels over the past year “fell nearly 10% overall and 23% for top performers among 1,300 full-time workers at 235 large U.S. employers.” According to the article, the key to increasing levels of engagement is to “rethink” benefit and compensation strategies.

A different point of view arrived in my inbox last week, in the form of a “Conversation Starter” from McKinsey. The brief essay, entitled “Motivating People: Getting Beyond Money,” also focuses on engaging and inspiring employees, but takes a different approach:

Numerous studies have concluded that for people with satisfactory salaries, some nonfinancial motivators are more effective than extra cash in building long-term employee engagement in most sectors, job functions, and business contexts. Many financial rewards mainly generate short-term boosts of energy, which can have damaging unintended consequences.

So, is it all about the money (or the total compensation), or is it about the intangibles?

Whichever side one may be on, there’s a question that everyone who is concerned with employee engagement needs to think about – how does 10% unemployment (which, according to at least one economist, might increase to as much as 13%) affect the type of – or even the existence of – employee engagement initiatives? This is an important question to consider, especially for HR/benefits pros who think that the need for employee engagement initiatives is self-evident. With double-digit unemployment, employee engagement advocates need to build strong business cases for increased investment since many executives can point to the numbers and say “hey, people should be happy just to have a job!”

As the leaves turn and fall, and an autumn chill settles in, many employee benefits professionals are deep into the annual open enrollment process. My firm is busy putting the finishing touches on Web-based enrollment systems for several clients. It’s definitely a busy time.

Today I noticed on Twitter that one of the HR pros I follow, Jason Lauritsen, posted the following tweet:

I am tired. Tomorrow is the last day of benefits open enrollment for us. Exciting day for us HR geeks.

So, that got me thinking – what are other folks on Twitter saying about open enrollment? A quick search turned up lots of enrollment related tweets, but I want to focus on a few from “regular” (i.e., non-HR) employees – the participants in the process, not the people who run the process. I can’t claim that this is any kind of scientific sampling, but it does provide an interesting snapshot of what employees think of benefits in general and open enrollment in particular:

• kerchevalj: … hey, don’t judge me because I nod off at lunch while reading about employee benefits.
• gormsby: On November 5th, I got the new flyer announcing the Employee Health and Benefits Fair taking place on November 3rd. Good to know.
• ceetwo: Day off tomorrow to prep and pack for 5 days of late nights and early mornings and boring lectures about employee benefits.
• bkGirlFriday: Today I’m going to buy my 3 cardigans for less than 40 bucks. Ah the benefits of the employee discount!
• crazygirl13: I am a real employee! I can qualify for benefits! Yay!

Reading these, I’m left with two thoughts – one, it’s important to remember that most employees are about as excited about enrolling for their benefits as they are, say, to visit the dentist or get their oil changed. But, at the same time, employees do appreciate their benefits, as illustrated in that last tweet about becoming a “real employee.”

So to everyone with a hand in managing open enrollment this year – work hard to make the process as simple as possible, be understanding, don’t take things personally, and keep your sense of humor. And, if you’re not already on Twitter, consider joining in the conversation, or at least listen in once in a while – you never know what you might learn.

The results of two surveys released last week – one conducted by Watson Wyatt, the other by Grant Thornton – present contrasting views of where the economy is headed in the near term, at least as viewed from the lens of compensation and benefits.

The Wyatt survey is the more bullish of the pair. According to their research:

• 54 percent of employers that froze salaries plan to reverse those salary freezes within the next six months
• 49 percent plan to reverse hiring freezes
• 35 percent plan to reverse 401(k) employer matching reductions

The Grant Thornton survey – which, unlike the Wyatt survey, was limited to the financial services industry – paints a less rosy picture:

• 26 percent of those surveyed said their company will increase hiring over the next six months
• 49 percent plan to reduce bonuses
• 27 percent are reducing health care benefits
• 31 percent plan to reduce 401(k) matches

I think the takeaway from looking at the two surveys together is the economy is improving, though it is doing so slowly and unevenly. As a result, there is still a great deal of caution among business leaders, especially in industries closer to the center of the meltdown.

There have been some interesting tidbits over the past few weeks on employee engagement. I’d like to tie a few of them together here in this post.

Just this week I came across an opinion piece by Brad Hall that was posted on TheStreet.com on October 1. Hall argues against the idea that “engaging” employees leads to strong business results. He writes:

We’ve got a fundamental premise wrong. We believe that making employees satisfied will make them successful. That’s not true. In fact, the relationship is reversed — make people successful and they will be happy. Employees, at least those you want to keep, don’t want to be indulged, they want to be successful.

Imagine that you are sitting in a room with 10 sales reps, none of whom are making quota. Feel the mood of the room. How can you change it?

You can try to make them happy … maybe a company bowling night. Or, you can help them make quota. Which will have the biggest impact on job satisfaction? Causality flows from success to satisfaction. We’ve got it backward.

In other words, concentrate on providing employees with the tools to make them top performers in their jobs and don’t worry about whether they’re “happy.” Satisfaction will flow from solid performance – if you don’t have solid performance, then traditional sorts of employee engagement initiatives will likely not have the desired effect.

But company culture is important, right? Well, according to a recent survey, it depends on whom you ask. The survey, conducted by staffing firm Spherion, found that employers believe that culture and work environment are two of the top reasons employees choose to stay at a company. Employees, however, cite benefits, compensation, and career growth opportunities as the top three reasons for sticking with an employer.

My friend, Philadelphia-based corporate communications consultant Fran Melmed, resolves the disconnect this way on her blog:

During tough times, employees focus on the bare necessities and can get squeamish. They need money to pay their bills and they definitely need health insurance to CYA. For a spell, they’re willing to overlook the lousy decision making and poor communication . . . But I’m sorry. If your climate, supervisor relationships, and work environment aren’t clicking, they’re still walking—eventually. Who hasn’t witnessed—with envy—someone leaving for a great sign-on bonus and huge pay increase only to return because the culture was lethal?

Fran’s point is well taken, but, really, the key question is what we mean by “culture.” Does culture mean, to paraphrase another part of Fran’s post, that the company cares about your daughter’s birthday or the fact that your mom is in the hospital? Or, rather, do we mean by “culture” that the company allows its employees to realize their full professional potential. Let’s go back for a moment to the piece by Brad Hall:

Several years ago I asked a friend who joined Merck as a research scientist if he chose Merck because of its laser eye surgery benefit. He said, “Do we have that?” I asked him about other Merck benefits reported in Fortune to which he seemed equally unfamiliar.

Then I asked, “So, why did you join?” His eyes sparkled as he talked about Merck’s research culture and how he could become a renowned scientist. My friend wanted to be successful. Make him successful and he will be happy.

So which definition of “culture” should we concern ourselves with? Ideally, it should integrate both aspects – creating an environment where professional excellence is encouraged and individuals have real opportunities to grow and develop, while, at the same time, is warm, caring and respectful of the fact that life exists outside the workplace. Oh, and don’t forget to include great pay and fantastic benefits. And, of course, doing work that really makes a difference in the world. I mean, that’s not too much to ask for, right?

As I wrote in a post last month, there had been some concern that, because of a decrease in certain cost-of-living measures, the IRS would decrease the maximum amount that individuals would be allowed to contribute to 401(k) and other similar defined contribution retirement plans in 2010.

Today the IRS announced that contribution limits for 401(k) and similar plans will remain the same in 2010. As the IRS explains (as only the IRS can):

The limitations that are adjusted by reference to Section 415(d) will remain unchanged for 2010. This is because the cost-of-living index for the quarter ended September 30, 2009, is less than the cost-of-living index for the quarter ended September 30, 2008, and, following the procedures under the Social Security Act for adjusting benefit amounts, any decline in the applicable index cannot result in a reduced limitation. For example, the limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) will be $16,500 for 2010, which is the same amount as for 2009. This limitation affects elective deferrals to Section 401(k) plans and to the Federal Government’s Thrift Savings Plan, among other plans.

The above is taken from a press release announcing the decision. The full text of the press release can be found here.

Last week I wrote a blog post about the challenges faced by patients when they try to be prudent consumers of health care. In short, it’s pretty tough, since the market for health care plays by some pretty different rules than the rest of the economy.

However, a front page article in Tuesday’s Wall Street Journal provides some hope that, given the right information, patients can in fact become better consumers, and, in the process, experience better medical outcomes while spending less money. The article begins as follows:

Be it cereal or cars, buyers usually have an idea of how good the products are and how much they cost before they buy them.

That’s not how U.S. health care works. Patients rarely know which hospitals offer top-quality lung or aortic surgery, and which are more likely to harm them. Hospitals don’t compete on price and rarely publish measurements of their quality, if they measure it at all.

Except in Pennsylvania. For two decades, a state agency has published “medical outcomes” — death and complication rates — from more than 50 types of treatments and surgery at hospitals. The state has found that publishing results can prompt hospitals to improve, and that good medical treatment is often less expensive than bad care.

According to the article, Pennsylvania has been quite successful in researching and documenting medical outcomes, which has resulted in improved care and lower costs. The system isn’t perfect; for example, certain hospitals have complained errors or of problems with the methodology. Another weakness is that, so far, it has been difficult to gather and publish cost information. But, overall, the system seems to work and could serve as a model to the rest of the country.

Today’s recommendation is a relatively brief article that presents some great insights into the challenges of making consumer-driven health care a more central part of efforts to reform the health care system as a whole.

The article, “Talk to the Invisible Hand” by Darshak Sanghavi, discusses the various reasons why the health care marketplace is a very different animal from marketplaces for other consumer goods. The problem, succinctly stated by Sanghavi, is that “the usual rules of the marketplace seem not to apply to health care.” The author continues:

When left to their own devices, buyers ignore product quality, fail to value goods properly, and overpay vast sums. (Weirdly enough, they’re also happy as clams with the results.) Yet every health reform bill with a chance of passing involves significant cost shifting to patients. Like it or not, patients will have to be better consumers. That’s why it’s critical now to fix the failures of the market before we throw open the gates for business.

The author argues for a stronger government hand in health care, although not in the sense that has been discussed over the past many months of the health care reform debate. Citing recent work by economists Richard Thaler and Cass Sunstein, Sanghavi calls for the government to be more involved in setting up strong “choice architecture” which would guide patients in making reasonable, rational  health care decisions. Some examples that he gives include:

Worried that consumers are buying the more expensive, less effective blood-pressure pill? Have the FDA redesign the drug labels to steer patients to the right choices. Are heart surgery patients inexplicably going to the fancy hospital with worse outcomes? Consider jacking up the co-pay for underperforming centers to discourage patients from going there. Are people often choosing insurance that doesn’t pay for regular pediatric checkups? Make sure that the default insurance choice for families includes full coverage for checkups. Worried that doctors are ordering too many expensive CT scans? Require hospitals to have a “radiation account” program to let patients track their cumulative lifetime radiation exposure (and their cancer risk) to discourage too many scans.

Personally, I’m a fan of consumer-driven health care – I even walk the walk, as I have a health savings account and am covered by a high deductible insurance plan. But my own experience reflects the challenges that the article outlines – seeking out health care (especially for one’s children) is quite different from going to the mall or buying a book online. The theory behind consumer-driven health care makes a lot of sense, but there are some real world challenges that must be addressed for it even to come close to meeting its potential for creating a more efficient and less costly health care system.

A couple of recent articles take a critical look at 401(k) plans. While many people – especially readers of this blog – may not agree that 401(k) plans are fundamentally flawed, the arguments presented in both articles are worth considering.

One of the articles is entitled “Workers discover 401(k) plans are failing them in retirement.” The article cites a number of worrisome statistics, including this rather depressing nugget:

At the end of 2006, with the Dow Jones index above 12,000 and booming toward its 14,165 peak the next October, half of private-sector workers in 401(k) plans had account balances of less than $25,000.

A figure like that might not be quite so worrisome, since it can include many young workers just starting out with their investments. But half of the workers with less than 10 years to go before hitting the traditional retirement age at 65 had nest eggs of less than $40,000. Over the course of a typical 20-year retirement, that would yield $204 a month, before taxes — and before the stock market crashed.

“That’s good for dinner and a movie but it’s not retirement support,” says Teresa Ghilarducci, economics professor at New York’s New School for Social Research.

The second article is an opinion piece entitled “The modern retirement plan: Cross your fingers.” Here the author notes that when 401(k) plans were introduced, they were intended to supplement other sources of retirement income – primarily, traditional defined benefit plans – not replace them all together. But now, the author writes, “. . . Americans are on their own. Retirement has become largely a matter of aggressive personal savings and investor savvy. It doesn’t matter that most of us are unqualified financial planners. . .”

It’s interesting that given the beating that 401(k) balances have taken over the past two years there haven’t been louder calls for reforms. Clearly that’s due at least in part to Washington’s focus on healthcare; after all, there are only so many huge issues that Congress and the White House can deal with at one time. But even with healthcare reform dominating Washington, there are a number of retirement related bills in various stages of the legislative process (Towers Perrin has an excellent overview of pending bills and pieces of draft legislation currently making their way through Congress). I suspect that once the healthcare debate quiets down, legislators will turn their focus to pension reform. When that does finally happen, it’s likely there will be significant changes to 401(k) and other employer sponsored retirement plans.