Case Study/Department Solutions

Developing a 401K Employee Self Service Application

It is no surprise then that 401K ESS applications have taken off. A recent survey conducted by the consulting firm Towers Perrin, showed 80% of large companies participating in a recent survey already provide some form of ESS for 401K contribution changes, investment allocations and loan modeling, while 70% offer employee self-service for annual benefits enrollment. The vast majority of these systems, however, involve interactive voice response (IVR) with only 14% of the companies now offering Web-based investment allocation changes and 12% offering Web-based contribution changes. Web-based loan modeling and annual benefits enrollment are each offered by only 10% of the companies that participated in the study. These figures are expected to increase rapidly in the next few years as more companies begin to take advantage of the higher bandwidth of information flow and increased opportunity for personalization that can be provided by Web-based ESS applications.

In developing your company’s 401K self-service application, avoid the seductive aspects of the technology that might inspire you to simply put a Web-based front end on your current business practices. An example would be publishing your 401K plan provisions to HTML and stopping there. The problem with this approach is that it doesn’t improve your current business model by harnessing the power of the Internet. Instead, consider the full capabilities of the Web in designing your ESS. For example, offer your employees a modeling application that allows them to enter their own retirement assumptions such as their current age, when they want to retire, how much they will contribute, and what type of investments they are planning. Also, don’t forget about the potential of the Internet to provide personalization to users. If for example, the terms of the 401K plan are different for different employees, part-time vs. full-time, salaried vs. hourly, etc., simplify navigation by providing the employee only with access to the information that pertains to him or her. Or, perhaps provide a custom calculator that pops up when they enter the 401K section of your site that shows exactly how much progress they have made towards their retirement goals and how far they have to go.

If, like most companies, you use an outside administrator to run your 401K plan, make use of their existing content and transaction processing capabilities to minimize your company’s development costs. The major 401K plan administrators, for the most part, provide Web-based ESS sites that allow employees to enroll, change contributions, switch funds, etc. However, in most cases, the administrators will provide merely the transactional core of the site, leaving you with a considerable task of providing an informational front end as well as interfacing to the administrator’s site. Most companies will want to direct employees to these sites under the auspices of their own site so the look and feel remains the same. The starting point and minimum content for such as front end should be paperless summary plan descriptions. The ultimate that is possible today is a central repository of human resources benefits and policy information that can respond to natural language queries from customer service representatives or the employees themselves with accurate answers tailored to the employees’ specific situation. The knowledgebase can reason about the plan in ways that a static website or information retrieval system cannot. For example, it can store rules that are used to determine effective eligibility dates and can calculate them in any situation.

An important question is determining how you will handle the linkage to the administrator’s site. One philosophy is to make the interface as seamless as possible so that the employee may not even be aware that they are moving to another company’s site. This can be accomplished by placing the administrator’s 401K application within a frame in your site and using a single login to both sites. The ESS application then takes on the look and feel of a single application. Other employers want to make it clear to employees that their 401K transactions are being conducted with a third party. These employees may choose to create a clear dividing line by having employees enter a second login when linking to the administrator’s site. One reason for taking this approach is that it gives the employee the confidence they are dealing with a specialist in the investment field. Using a separate logon also provides an extra layer of security in safeguarding the employee’s information and helps to relieve the employer of responsibility in case the security of the site is compromised. In developing ESS applications for major employers such as AT&T, Lucent and Chase Manhattan, we have stressed the important of tailoring the site to match the firm’s specific business objectives.

The move to defined contribution plans, such as 401Ks, has greatly increased the responsibility of the employee for planning their own financial future. While few companies have the resources to provide personalized investment and retirement planning services to employees, the unique character of the Web makes it practical in most cases to offer employees tools that can help them reach their retirement goals without incurring a major expense. For example, a major telecommunications firm recently rolled out a service to its 85,000 employees that tells 401K plan participants whether they will have enough money to retire under various scenarios. The model will automatically include information such as the employee’s salary and 401K balances in the calculation while the employee can enter information such as various contribution levels and at what age they wish to retire.

A model offered by a large financial services firm goes one step further by, in addition to helping scope out various retirement scenarios, providing the participant with asset allocation recommendations to help them meet their goals. The model allows the participant to allocate their assets among various types of investments such as growth stocks, blue chip stocks, corporate bonds and money market funds. The model then estimates performance of these investments based on historical averages and provides the participant with an idea of how much they will have come retirement. For example, if the employee opts to put a considerable proportion of their money in cash, the model will show their assets growing more slowly than if they had invested in equities. The participant has the option of reallocating their investments in the model in an effort to improve their performance.

Finally, consider the critical issue of whether to build your 401K ESS yourself or to work with a partner. If you decide to do it on your own, you will need to build up expertise in the areas of programming, content development, financial planning and regulatory compliance. Chances are, these resources will be fully utilized only during the life of this one project. That’s why the majority of companies choose to outsource their technology development to an experienced service provider. This approach has the advantage of allowing you to focus on your core business operations while ensuring that critical technical issues are in the hands of specialists. The net result is that you can attract and retain key employees with a world-class benefits plan while minimizing the workload of your HR and call center staff.

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