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AB News AllianceBernstein Research Shows Defined Contribution Plan Sponsors Welcome Changes Proposed in the Pension Protection Act of 2006

NEW YORK--(BUSINESS WIRE)--Defined contribution plan sponsors identified the same key areas of concern that Congress targeted in its recent overhaul of retirement plans, according to new research by AllianceBernstein Investments ("AllianceBernstein"). Plan sponsors say they need increased simplification, communication and investment advice from service providers and specifically listed automatic enrollment, automatic increases in salary deferral rates, and better default investment options as top priorities for 401(k) plans.

"The research, which we compiled and analyzed over the past 14 months, lines up with the law," said Matthew P. Mintzer, co-author of the report and National Sales Manager for Retirement at AllianceBernstein. "For nearly two decades, the emphasis on technology in defined contribution plans confused features with benefits and, in the end, the real needs of participants were not met. The Pension Protection Act of 2006 changes all of that and the timing couldn't be better. It is what sponsors want -- and what participants need."

The 39-page report titled, "Inside the Minds of Plan Sponsors: What They Care About and Want," highlights sponsors of smaller, traditionally advisor-serviced defined contribution plans with assets up to $400 million. The research offers insight on how service providers can upgrade the quality of service and work more closely with plan sponsors, ultimately benefiting plan participants who admit they worry about saving for retirement. Some of the major findings of the research included:

• Too many investment choices -- The number of investment options offered in defined contribution plans is out of synch with sponsors' preference for a streamlined menu of choices. Although the average defined contribution plan had 19 options and two-thirds of respondents said that a "diverse" plan should contain at least 16 options, sponsors say their plans offered far too many options.

• Lack of human interaction -- The quickening pace of automation and the introduction of tech-based services sparked a decline in human interaction in plans over the past two decades. However, sponsors view people as a critical part of the service process and want their service providers to raise their level of personalized involvement.

• Sponsors do not trust many of their providers -- The research revealed a parallel theme of trust running alongside sponsors' desire for more of a personal element in their plan services. Sponsors want providers to be more involved in their service process, yet they do not have enough trust in the people they are dealing with.

Rapid growth in the defined contribution market has exacerbated these problems. Defined contribution plans are the dominant employer-based retirement program, and assets in defined contribution plans totaled $4.1 trillion in 2005, according to SPARK Marketplace.

"When a market sees growth as explosive as the defined contribution industry, it often comes at a cost," said Daniel P. Gangemi, co-author of the report and Managing Director of Market Research at AllianceBernstein. "By refocusing our attention on the real needs of participants, revising the structure of defined contribution plans, and concentrating on smart investment options like target-date retirement funds, we will shift the spotlight back on the welfare of participants. There is nothing more important than that. In short, the Pension Protection Act is addressing many of the right things."

EXPERT AND ALLY: HOW SERVICE PROVIDERS CAN HELP

The research outlined several major recommendations for plan sponsors when updating or establishing new plans. Those same issues were dealt with in the Pension Protection Act of 2006. They are:

• Automatic enrollment -- Plan sponsors should automatically enroll employees in a defined contribution plan unless they indicate otherwise. Instead of making an active choice to participate, the employee should have to make an active choice to not participate. The research showed that two-thirds of non-participating workers said they probably would have stayed in a plan if they had been automatically enrolled.

• Automatic increases in salary deferral rates -- Studies have shown that participants strongly embrace automatic increases in salary deferral rates as a plan feature when offered. Plan sponsors can easily increase salary deferral rates by having the plan automatically implement deferral-rate increases as a benefit of participation. In addition, participants could choose to automatically increase their deferral rate when they receive pay raises or according to some other specific timetable.

• Better default investment options -- With the move toward automatic enrollment, the choice of a default investment option becomes even more important because many employees typically leave their assets in the default fund, which is normally a stable-value investment such as a money market fund. The new law encourages employers to use more appropriate long-term investment alternatives, such as target-date (or "lifecycle") funds, balanced funds, or professionally managed accounts as defaults.

• Investment advice -- Legal restrictions have prevented most defined contribution plans from offering investment advice in the past. However, the Pension Protection Act of 2006 includes a provision that makes it easier for plans to offer advice while remaining compliant with the law.

• Effective communication -- Sponsors must communicate plan-related information to employees clearly and consistently to help participants feel confident about the investment decisions they make. While printed materials, Web-based applications and on-site meetings are common forms of communication, AllianceBernstein recommends developing compelling in-person sessions for employees with featured speakers, including a representative from the service provider and a training specialist or human resources representative.

Plan sponsors offered other key feedback, including:

• Simplify -- Sponsors prefer a shorter list of menu options. Target-date retirement funds are often viewed as a simpler investment option because they relieve the investor of many decisions associated with managing a broadly diversified retirement portfolio. The key decisions are made instead by an investment manager.

• Increased human interaction -- Greater personal contact with providers could help sponsors feel more trust toward providers and could also improve sponsors' perceptions about the providers' level of knowledge.

"The ultimate goal is to help participants save more -- and more appropriately -- to improve their odds for a successful retirement," said Mintzer. "If our industry can get this right, then we can directly contribute to improving the lives of millions of people. And there is no job more important."

ABOUT ALLIANCEBERNSTEIN

For nearly 40 years, AllianceBernstein Investments, Inc. has helped investors build and preserve wealth by providing innovative investment strategies from a diverse line of investments including mutual funds, college savings (529) plans, retirement products and separately managed accounts. A globally recognized leader in growth, value and fixed-income investing, we serve over four million clients, with approximately $146 billion in assets under management for both U.S. and non-U.S. investors. Our parent company, AllianceBernstein L.P., is one of the world's largest publicly traded asset management firms, with approximately $635 billion in assets under management at July 31, 2006. You should consider the investment objectives, risks, charges and expenses of the AllianceBernstein family of mutual funds carefully before investing. To obtain a free prospectus for any of our funds, which contains this and other information, contact your investment advisor/dealer, visit our website at www.alliancebernstein.com or call us at (800) 227-4618. Please read the prospectus carefully before you invest.