Governance models for defined contribution plans have been put to the test since last year, as employee benefits executives and their counterparts in finance have scrambled to ensure that investment options and participant communications have kept pace with financial market turbulence.

While benefits executives report they are, in general, working well with their counterparts in finance, research points to patterns of divergent perceptions of 401(k) participants' goals and needs, as well as different operational priorities for the plan itself, that could hinder its ultimate success.

A recent Web-based survey by AllianceBernstein, a New York-based investment management firm, asked more than 200 benefits, HR and financial professionals several 401(k)-related questions and segmented their response by job function. The results suggest that benefits/HR executives are:

* Less confident than finance executives that 401(k) communications are "as simple as possible" for employees to understand.

* More inclined than their colleagues in finance to believe that employees want extra help in choosing plan investments and formulating a strategy to fund their retirement income.

Those findings were consistent with an earlier AllianceBernstein study on this topic, notes Richard A. Davies, head of product strategy for the firm's defined contribution plan division. "Some differences in perspective are natural, given their different roles and professional training," he says.

Call for shared vision

"But it's critical, especially in today's economic and investment environment, that benefits and finance people reconcile any fundamental differences so that best practices in 401(k) plan design can be adopted. This will ultimately improve outcomes for all employees and the organization," he adds.

The recent survey did, however, show a basic consensus among benefits and finance professionals that employees are focusing more on long-term 401(k) investment returns than on simply avoiding short-term losses.

For their part, benefits professionals have been trying to do the same thing in recent meetings with their colleagues. At Home Depot, strategic decisions for the company's $2.25 billion 401(k) plan are made by a pair of committees - one focusing on plan investments, and the other, on plan design and administrative matters, according to Brant Suddath, director of benefits for the company.

The committees ordinarily meet quarterly. "Both have probably met three or four additional times in the last couple of years, either to review financial market data, to make sure we were in the right funds or to discuss whether there were any additional things we should be doing or communicating to employees," Suddath says.

Ahead of the curve

The good news for the 150,000 plan participants, Suddath adds, was that Home Depot's 401(k) oversight committee structure has been place for about 15 years. "I think we've been ahead of the curve as far as managing the plan and owning our fiduciary responsibility. Because of that, we had good practices and protocols in place so that when we hit the down market, we were prepared" to respond, he says.

Although the committees are composed of corporate officers, Suddath, along with another colleague, functions as a moderator for the committees, creating the agenda, scheduling meetings and moderating the discussions.

Home Depot's current priority for its 401(k) is to ensure that participants are aware of, and taking advantage of, "all of the tools they have access to," including an online financial advice resource developed by Merrill Lynch.

At Ernst & Young, the same investment committee that oversees the Big Four firm's defined benefit pension plan is responsible for investments of its $2.35 billion 401(k) plan, according to Mary Stringfield, national director of total rewards and benefits for the firm. The committee is chaired by Ernst & Young's chief operating officer, and its members include representatives from both the human resources and finance functions within E&Y.

Although she reports to HR leadership, Stringfield says she has "always worked very closely with our national finance group" - not just during times of national financial crisis and stock market meltdown. But, she notes that "we do all the financial work for the plan in my department. We have a bunch of CPAs" to handle the nuts and bolts.

But when it comes to strategic decisions, "it's a joint decision-making model," no single party is "driving the train," she says.

One of E&Y's services to its own clients is personal financial counseling. "We take advantage of the expertise of those people" in running the 401(k), Stringfield says. A leader from that group sits on the plan's investment committee and has kept its members focused on the long-term nature of retirement investing, Stringfield says.

That input has been particularly helpful to respond to "some lobbying" by risk-averse plan participants who have asked for a new money market fund option in the plan.

Similarly, at Portland, Ore.-based Legacy Health Systems, the organization's 7,900 403(b) plan participants have been on the receiving end of a stepped-up "easy-to-understand" communication effort on investment topics by Legacy's retirement consultant, according to Mary Ann Holbert, director of compensation and benefits.

The hospital system's $222 million plan is overseen by a committee consisting of the Legacy's CFO, senior VP of HR, and three chief administrative officers who run different hospital facilities.

Holbert says she enjoys a "strong working relationship with our finance department partners. We clearly work in sync with each other," she says.

In sync or out?

But while benefits and HR executives, when interviewed, say they mesh well with their counterparts in finance, they don't always think in sync with them, according to an AllianceBernstein study (available at abdc.com). Indeed, the study concluded that many plan sponsors suffer, perhaps unconsciously, from "double vision" with regard to critical aspects of their 401(k)s, according to Davies.

"We found a lot of conflicting perspectives between HR and treasury professionals that are an impediment to deeper partnerships between the two," he says. The study, conducted in collaboration with Greenwich Associates, was based on interviews of 233 sponsors of plans with at least $250 million in assets.

Among the study's findings: HR professionals feel a lot more involved in treasury's sphere of influence, such as evaluating investment options, than treasury feels they are. For example, 59% of survey respondents with HR titles believe that final plan investment option decisions were joint decisions, but only 30% of treasury respondents share that perception.

Conversely, treasury executives think of themselves as more involved in traditional HR-dominated functions, such as plan design, than HR and benefits executives believe they are.

The study also revealed that HR professionals consider that they are the ones on the "front lines" doing the "dirty work" of implementing plan design or investment option changes, bearing the brunt of inquiries from confused or concerned plan participants.

Many HR executives responding to the survey appear to believe that treasury executives dwell in an ivory tower, where it's easy to propose plan changes "when you don't have to answer the phones," Davies says.

HR and treasury executives also differed in their definitions of success for the plan, with treasury placing a higher priority on cost reduction than HR. While some aspects of this "double vision" phenomenon are perhaps predictable and harmless, both corporate functions must share a common vision on the big picture, according to Davies. "If employers can't make the parts work together, outcomes will suffer," he warns.

How so?

According to Davies, the biggest issue facing many defined contribution plans today is the effective implementation of new default options, such as target-date funds.

"Because this is both a plan design issue and an investment issue," Davies says, "it absolutely demands collaboration between the two camps. The best target-date portfolios in the world will have little impact unless the portfolios are properly implemented, communicated to and used by participants."