i 1{SIGHT: RETI REM E1{T PtAl{ 1{I 1{G

BY JOHN RUMLER

THE ACCIDENTAL INVESTORHow employee contribution plans are reshaping retirement planning.

OWNSIZiNG.THEWORD IS

chilling to any employeewhose job is on the line, espe-

cially if youie a 52-year-old middle-manager like David Baker was forPhilip Morris Co. in 1994. But in this

case, the tobacco conglomerate madeBaker an offer he couldn't refuse: a

lucrative early retirement buyout.After rising from a retail saiesman

to a trainer and supervisor, putting in50- to 60-hour work weeks andspending huge chunks of time on theroad, he was ready for a rest.

Combined with the earnings thataccumulated over 29 years throughhis profit-sharing plan and a 401(k)rhat starred in 1982, the buyout leftBaker with a handsome bundle.Enough, in fact, for two people to liveoffthe interest alone, provided theyinvested it wisely.

Baker discussed his reinvesrmentoptions with several experts beforesettling on Dale Hadley, a certifiedfinancial planner with FinancialNenvork Investment Co.

Roliovers such as Baker's arentnew.What'.s notable is the sheer

volume of people forced to makeinvestment decisions as the numberof employee-contribution packages

skyrockets.This new breed of acci-dental investors who are rolling overtheir employee contribution plans is

revolutionizing our notions of retire-ment planning.

The shift to rollovers and flexibleemployee savings plans didn't emerge

out of benevolence. As corporateAmerica's giant scythe systematicallyfelled thousands of middle manage-ment positions during the 1980s andearly 1990s, the companies emergedieaner and rneaner.As the top execu-tives soon discovered, the dead woodwas gone but the vexing headache of

OREGON BUSINESS / MARCH 1998

ttWetve got a nice

amount for ourcelves,

but someday we'll

be history.tt

administering millions of dollars inpensions remained.

Under the old defined-benefitplans, businesses were still responsiblefor tracking those funds

- often for

20 or 30 years -

and for people whowere no longer employees. Gradually,the larger companies opted to createportable retirement plans. Employeefeedback spurred broader options forinvestment diversification while otherchanges resulted from governmentregulation and the unions, whichdemanded more participatorymanagement of the retirementsavings.

Firms such as Hopkins Pension

Service work as a third-party admin-istrators helping to ensure thatemployee retirement plans are incompliance with IRS rules. CurrentiyHopkins' three employees administer275 401(k) plans and another 150profit-sharing plans. The Tigard-basedfirm also helps companies set updozens ofrollover plans each year, butowner Gene Hopkins says he hasntset up a traditional pension plan inthe last five years.

A large company could spend morethan $100,000 a year handling the oldplans, including annual costs ofinsur-ance, actuarial expenses and audits, heexplains. "Plus they don't want thefiduciary liabiliry so it's easier to handoffto a mutual fund company."

Financial planners now are beingoverwhelmed by requests fromretirees who want guidance in

handling these funds, often hugeamounts accumulated over decades.'With empioyee contribution plansoutpacing traditional pensions. invesr-ment planning has become thegrowth industry of the '90s.

Brad Butz, a branch manager forFidelity Investments in Portland,describes the new wave of investedretirement earnings as an avalanche.About 45% ofall ofthe finances rharFideliry manages ($60 million in thePortland area alone) flows fromrolled-over retirement funds.

Butz is headquartered in'Wash-ington Counry which is explodingwith small business startups withber'rveen 10 to 30 employees. Most ofthem are implementing employeecontribution retirement p1ans. Theyrepresent just a small segment of a

new army of investors who will beemerging across the nation in another10 years as the baby boomers starthitting peak retirerncnt age.

The arrangement, so far at least,

benefits both employee and employer.The new plans, which are usuallyinexpensive to maintain, give theirholders more options than ever.Whileemployees gain control of their assets

and are able to participate in theinvestment process, the businesses also

get a break.They no longer have toact as the financial guardians for thepension holders, an arrangement thatused to last up to 40 years.The fewexceptions are the traditional defined-benefit plans still favored by theheavily unionized sectors. Examples:the United Auto'Workers' plan and, inOregon, PERS.

As the opportunities for employeesto manage their own retirement fundsincrease, many employers are nowresponsible for educating theirworkers on investment matters. In

40

Between careers and unsure how to invest his retirement savings, David Baker sought professional advice.

401(k)s, rvhere the employe e

contlibutes to his or hcr olvtr cruse.

lor example, tl're Internal l\evenueService requires the comparry toprovide an cducational courponent.Thosc scrvices can bc as skirnpy as a

ferv brochures and a luuch*roon'rlcc(rrrc. or ,rs c<-rttprclte nsive ts .t sr't'ic.

of scrninars covering vohtiliry riskand assct managenrcnt.

Although .{01(k)s h:rvc also been

around since thc carly 1980s, it rvrrsu't

until the last ferv ycrrs thirt people

bcg:rn investirrg aggressively in stocks

end rrutu:rl fr-rnds.

Many investors,like llaker, u.ill putthcil earnings in II\A-type accor.rllts

and move on to othcr.iobs. Aftcrtaking :r ye:rr off, B:rker sold rutomo-biles for a lerv months. then in 'l 996

he started driving school buscs for theV:rncouver School District.At first he

'uvorked on cill, br,rt last spring hc

rvent full tinrc.That neans hc has yet

another retiremcnt plan. l3:rker, rvho

originally "re tircd" at 90% of his

Philip Morris salary, is satisfied rviththe performance of his rollover invest-

ments, r,vhich have already increased

by 50%', even though hels drarvn fiorn

thenr.Thc cxtent of his involvement,besides lcading the finurci:rl pages and

sonre qu.lrtcrly reports on his mutualfunds, is just to n1eet lvith his financialpl.rrrrrcl t'v.'ry 'ix tttortths lor .r perfor'-

rulnce revicrv.

I\etircmcnt investnrents are rlotrvithout risk, horvever. Hopkins kncrvof orre broker r,vho :rdvised a 6)-year-old retirec to invest his $250,000 nest

cqg into rr single con'rpany.-Within six

nronths thc nran lost a cluartcr of his

savings.

"If the guy rvas 42 instead of 62,ttrvoulcln't hrve been l big deal," he

says."Thcre's ahvays an elcment ofchnncc, but rvhen you're oldcr, timeisn't on your side."

When l)on Cumnrins rctired in19f19, his eruployer, US West, o{ltredto pay hinr the nct'"vorth of his

pcnsion brsecl on a iifc cxpectancy of72. Cummirrs, rvho nou. r'vorks forAT&T nrrnlging ficld tcchnicians,

combined those funds rvith his ,10i (k)

and on the advice of ;r consultantinvested everything in a self-directedIIIA. In the next fcrv months, thestock rnarket plr"rnged several hundredpoints.

By the next year, his investments

bounced back, but it was an eye-

opener. A pension is a sure thing; thestock market isn't. On the other hand,

he points out, rvhen you die, thepension is basically gone, but theinvestrnents live on. "We've got a niceamount for ourselves, but sorneday

we'll be history," Cummins says. "It's a

good feeling to know that it will stillbe there for our kids and grandkids."

So where is this trend headed? Noone knows for sure, but plannersagree that the effect rvill be huge.

Some argue that a nationrvide shiftfrom savings to investment is already

fueling the stock markett steady

clinrb, in turn, attracting even nroreir.rvestors.The rising tide of babyboomer retirces is expected to crest inthc rrcxt l0 to l5 yerrs crusing rrtunprecedented wave of persor-ral

investment.But in the next 20 to 25 years, those

same pcople will be selling offtheirstocks. "Everyonek guessing r.vhat willhappen," says Hopkins. "No one has a

clue of what the effects will be,

because you can't predict what thegovernnlent will do." I

MA]\CTI 199IJ / OI{EGON BUSINESS 41