Diversification is definitely one message that shouldn't be left out of retirement plan communications, experts say.

Peter Gulia, an ERISA attorney and founder of Fiduciary Guidance Counsel in Philadelphia, says, "Many employers are [emphasizing diversification], but not all are, and more should be."

Among the employers that are focusing on diversification, Pepsi Bottling Group emphasizes the topic in targeted mailings, onsite workshops and articles in the company's quarterly benefits newsletter. It sends targeted communications at key times: when the employee reaches one, three, five or 10 years of service, hits their mid-40s or has two years until retirement eligibility. A few years ago, the company lifted restrictions on eliminating investments in company stock.

PBG also offers a Healthy Money program, which includes onsite financial education workshops, free and unlimited calls to financial counselors, and in-person sessions with financial planners for employees and their spouses.

Erik Sossa, senior director of compensation and benefits, says, "I think some folks get it. But they get it after we talk to them face-to-face. We see the most movement after a workshop. If you can speak to them live, it's most effective. You have to tell people seven times, seven different ways. It's human nature. Sometimes people need a couple of coats of paint for things to stick."

Steve Mitchell, director of investor education and planning tools for the retirement group at Merrill Lynch, says most employers are including diversification in their targeted communication campaigns. "Diversification is a very important part of our messaging," he notes. "Almost all of our clients are hitting the diversification theme at least once a year, if not twice."

However, not all employers are following PBG's example. "What I'm seeing going on is a focus on getting people into the plan, getting them contributing to the plan," says Leslie Smith, senior vice president in Aon Consulting's defined contribution practice. "There's been a lack of focus on the diversification issue."

Nevertheless, Kasey Kirschner, a principal in the communications practice of Buck Consultants, observes, "There has been some improvement [in diversification in recent years]. It's on the minds of plan sponsors. That certainly is a goal in many of our [communication] campaigns."

The increased focus on diversification may be one positive repercussion of the Enron fallout. In recent years, "plan sponsors have taken a much greater sense of responsibility for encouraging participants to diversify and not just be in company stock," Mitchell observes. "Plan fiduciaries have become much more aware of the risk both to the individual and also to the company's reputation" when you have too many workers invested too heavily in company stock.

Default investments

With many employers using auto-enrollment and diversified funds as default investments, "We'll see an increase there, and certainly that will help with the diversification issue," Kirschner comments.

Brad Klinck, senior vice president with Aon Consulting, agrees: "[Target-date funds] are often the defaults that the plans will provide. In doing so, they are removing much of the poor investing and lack of diversification that the participants might otherwise use in their retirement planning."

Improving communication

Using multiple media formats and branding communications campaigns have emerged as best practices in recent years.

Kirschner observes, "We are certainly seeing an increased push from clients around improving their communications to help employees overcome their inertia and inattention. A lot of clients are taking advantage of technology and electronic communications to deliver more just-in-time and personalized communications," including online tutorials and CD-ROMs.

She adds, "People learn and process information in different ways, so a multimedia approach tends to have the best success. You need to keep that momentum going. You have to stay out in front of employees or else they forget about it."

In addition, she notes, "Branding has really taken on more importance as clients realize that they need to cut through the clutter. A really strong brand helps readership and engagement."

Kirschner also recommends conducting focus groups with employees to discover how they want to receive information, as well as using local champions to explain the retirement plan and diversification.

A common mistake is to use generic examples and messages that aren't personalized. Employers need to aim communications and education to the folks that aren't diversified enough, rather than the workforce as a whole, Smith says. "Targeting the communication is really important," she explains. "It becomes a lot more meaningful to the individual when they're looking at their own numbers."

She adds, "Just relying on print or just relying on computer model delivery of advice really misses out on that personal touch."

Mitchell likes to show charts and graphs comparing investment returns for portfolios that are diversified well, versus those that aren't. He recommends bringing the data to life with eye-catching visuals and slogans, making it more palatable for workers who don't have the time or interest to become the best investors. "We've learned over the years that not everybody wants to be a financial expert," Mitchell explains.

Mitchell also stresses the need to make electronic communications interactive and relevant to real workers' current concerns. "It's really important that the web content be relevant and engaging and not just repackaging the same messages that we've included in printed materials for the last 20 years," he says.

To be trusted, communication needs to be candid. "To overcome cynicism among employees, open and honest communication is critical," Kirschner notes.

Inertia and lack of knowledge are the main roadblocks to workers diversifying their 401(k)s, experts say. "They may be experts at what they do on a day-to-day basis, but they don't have the education, training or experience to select investments," Mitchell points out. "There's always a group of procrastinators."

Better returns with advice

Recent research from Charles Schwab indicates that 401(k) participants who receive assistance with choosing their investment line-up yield a significantly greater rate of return than those who go it alone.

For example, 401(k) participants using an advice tool provided by an independent investment adviser earned an average 14% rate of return in 2006, versus 11% for those who did not use advice or target-date retirement funds.

In 2005, 401(k) participants who received advice earned an average 9.2% rate of return, versus just 6.6% for those who did not use advice or target-date retirement funds.

The differences are most pronounced among young employees because they often invest too conservatively for their age, according to Charles Schwab.

Participants under age 25 who received advice earned an average 14% rate of return in 2006, compared to 9% for those in the same age group who elected not to receive advice.

"It's not surprising that people using advice are more likely to earn higher returns, but it is remarkable to see how much better they are doing. Even a few percentage points make a big difference over time," says Jim McCool, executive vice president of Schwab Corporate & Retirement Services.

Hear more from Pepsi Bottling Group benefits director Erik Sossa in a "Five Minutes With ..." podcast, available at http://ebn.podhoster.com.

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