Employers and financial firms vie for control of your savings.

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1 WEEKEND INVESTOR APRIL 17, 2010 The Grudge Match Over Your 401(k) Employers and financial firms vie for control of your savings. By ELEANOR LAISE Attention, workers: A battle is brewing over your 401(k). A number of people who are changing jobs, being laid off or retiring are finding themselves in a tug-of-war between their former employers and investment firms eager to win their business. At stake: almost $400 billion of assets in 401(k)s and similar retirement plans that are eligible to be rolled over into other vehicles this year, according to Allianz SE's Pacific Investment Management Co., or Pimco. When an employee leaves a job, he or she is generally free to roll over certain retirement accounts like a 401(k) into an individual retirement account. But many employers, for the first time, are trying to hang on to their 401(k) participants. Some plan providers and employers, such as International Paper Co., are dangling carrots like low-cost investment options, financial planning or annuity-like products. Others are using sticks, criticizing IRA rollover advertisements or dragging their feet when workers ask for withdrawals. A few, including the National Football League, have even erected barriers to keep people in their plans for a certain number of years. NFL spokesman Brian McCarthy says a rule change "could be considered as part of a new collective bargaining agreement." Big IRA players are fighting back. Firms like Charles Schwab Corp., Fidelity Investments and Scottrade in recent months have rolled out new online calculators, blogs and other features in an effort to boost their IRA business. Some firms even shower investors with cash to attract rollover dollars. TD Ameritrade Holding Corp. and E*Trade Financial Corp., for example, are offering up to $500 to people who sign on. Historically, most employers have been happy to see retirees and job-changers take 401(k) balances with them, in part because of the headaches involved in keeping them in the plan. But that is changing. According to a survey by management consultant Casey Quirk & Associates LLC, roughly two-thirds of plans with more than $1 billion in assets said they want to retain worker accounts after retirement. The result "was a shocker," says Ben Phillips, a partner at the firm.

2 It all adds up to confusion for many workers. Scott Madden, 46 years old, of Portland, Ore., left his job as a project manager for a software company in mid-march, but his $240,000-in-assets 401(k) is sitting with his old employer. Mr. Madden is leaning toward rolling that money over to a traditional IRA, but has also considered a Roth, which would mean paying taxes up front but getting future tax-free withdrawals. He got a brochure from his 401(k) plan provider highlighting the benefits of leaving his money where it is, but he isn't persuaded that that is the best option. "The most difficult thing about retirement is all these suppositions you have to make" about tax rates, expected returns, and other factors, Mr. Madden says. Having maxed out his 401(k) for the past 15 years, he says, "I like to have my future secure, and I'm having a hard time doing that" because of all the uncertainties. Investors deciding what to do with an old 401(k) must consider a range of factors, from fees and investment options to potential future tax-rate changes. While the 401(k) plan may offer investment choices not otherwise available to individual investors, it may also offer a more limited menu overall, with just a couple of dozen choices. A 401(k) plan's fees can also be difficult to decipher. And some workers may simply have more trust in a longtime employer than in a financial-services firm seeking to attract their IRA business. New tools are emerging to help investors weigh their options. BrightScope, a retirement-plan research firm, early this year introduced a "personal 401(k) fee report," which offers a quick snapshot of plan costs and how they'll affect a nest egg over the long haul. Users can then compare these costs to their IRA alternatives. Employers want to hang on to workers' money for several reasons. The larger the plan's assets, generally, the lower the fees employers can negotiate with plan providers and fund firms like Fidelity, T. Rowe Price Group Inc. and Vanguard Group. A bigger asset base also helps employers get non-mutual fund options like collective funds, which often have lower costs, and more customized investments such as target-date funds composed of others funds on the plan's menu. With employers seeing the start of the baby boomer retirement wave, large plans "realized they weren't going to be so large anymore, and wouldn't get the same level of price breaks," says Casey Quirk's Mr. Phillips. Regulators and lawmakers have lately lent a hand to employers. The Labor and Treasury departments in February asked for public comments on the notion of providing annuities and other income-producing products in employer-sponsored retirement plans. And after being

3 lobbied by groups representing plan providers and employers, the Senate in March passed a measure that would allow certain 401(k) assets to be converted to a Roth 401(k). Currently, workers can only convert existing retirement-plan savings to a Roth account using an IRA. Employers aren't waiting around for legislative help, though. The state of North Carolina recognized the importance of keeping people in its $4.5 billion defined-contribution plan a couple of years ago, as financial markets started to sink. Now, it offers preretirement counseling sessions where workers are encouraged to stay in the plan. Employees who contact the plan's call center to ask for a lump-sum distribution are led through a discussion of other options before they're sent a check. Though departing workers in the past were handed retirement-plan withdrawal forms, "we're really trying to train folks so that's not the first form that goes in front of a departing employee," says state treasurer Janet Cowell. Ms. Cowell has crisscrossed the state in recent weeks, promoting the benefits of retirement counseling and other services for plan participants. Employers are also making more use of annuity-like investments or other products designed to deliver a steady stream of income to retired 401(k) participants. The number of retirement plans offering Prudential Financial Inc.'s IncomeFlex Target, which provides guaranteed lifetime income, nearly doubled last year, to about 170. Prudential late last year unveiled a new 401(k) package that encourages employers to enroll workers automatically and direct employee contributions to that product. Some employers, meanwhile, are enticing workers to stay in 401(k)s by playing up their cheap or unique investment options. These might include non-mutual-fund products not available in IRAs, like collective funds and stable-value funds, which are designed to protect principal and deliver steady returns. At International Paper, for example, the most popular 401(k) investment is the stable-value fund. "That's another reason that people might want to stay in the plan," says Bob Hunkeler, vice president of investments.

4 In some cases such options can be more attractive than what workers can find on their own. When Todd Dolan, of Mechanicsburg, Pa., left an old employer in 2003, he rolled his 401(k) into an IRA. But his IRA funds with Ameriprise Financial Inc. charge sales loads of 5.75% and annual expenses of about 2%. So Mr. Dolan, 33 years old, is reversing course, moving his IRA savings into the ultracheap defined-contribution plan offered by his current employer, the federal government. But some investors who want out of an old 401(k) find that they're fenced in. Chris Green, a former football player for the Miami Dolphins and Buffalo Bills, left the NFL in 1996, but he's stuck in its 401(k) plan. Mr. Green, 42 years old and now an account manager for S&D Coffee Inc., would like to consolidate his savings in his current employer's 401(k). But when he asked the NFL about a rollover, he was told he couldn't touch his money until age 45. "They have our money for over 20 years and know we can't take the money out," he says. "What kind of fees are they charging us?" The NFL's Mr. McCarthy says the age-45 rule was proposed by the players' union during a previous collective-bargaining process. While it's unusual for employers to block the exits in this way, some firms discourage rollovers simply by dragging their feet. Nowadays, says Tom Modestino, associate director at research

5 and consulting firm Cerulli Associates, some are thinking, "We want to maybe slow down the process if it's a request for a rollover that's going to lead to assets rolling away." Write to Eleanor Laise at eleanor.laise@wsj.com